MNI: 5 Things To Look For: UK Public Sector Finances Data

--UK December Public Sector Finances Data Due Jan 23

By Jamie Satchithanantham

     LONDON (MNI) - The UK's December Public Sector Finances Data print will be

released January 23, when we will learn how government borrowing fared in the

ninth month of the fiscal year. The MNI median expectation, taken from a poll of

analysts, looks for a stg5.0bn balance in borrowing excluding public sector

banks in December, in line with the result in December 2016 but below the

stg8.7bn outturn in November.

     Ahead of the release, we outline five themes for particular attention.

     - Year-To-Date Borrowing Best in a Decade ...

     Year-to-date borrowing currently stands at its lowest level since 2007

(stg48.1bn) and the trend for much of this year has been to undershoot the

borrowing path set out last year. For the last five months, borrowing has come

in under its respective year-ago result. If analysts' expectations of a December

borrowing balance of stg5.0b materialises that would

     - ... But Jan, Feb Will See an End to This Trend. 

     Typically, the borrowing balance normally receives a timely boost in the

first two months of the year as individuals pay taxes on interest and dividend

payments as part of their annual self-assessment claim. This can be seen in

Chart 1 above. This effect was amplified last year when an increase in the

associated tax rate announced for April 2017 saw people bring forward

transactions. The reverse of this forestalling effect will therefore weigh on

self-assessment tax receipts this year, providing a less generous relief to the

overall borrowing picture versus what we have seen before.

     - Growth in Corporation Tax Receipts Could End Unwanted 6-month Run. 

     Year-over-year growth in corporation tax receipts has sat in the red for

the last 6 months, but the pace of the decline has softened in recent months

from September (-5%) through to October (-2%) and November (-1%). If this recent

trend continues, the December data could unveil a return to growth. Zooming out

a little, however, the picture is quite disconcerting. Between April and

November, average monthly y/y growth in corporation tax receipts has been flat,

whereas over the same period a year ago it was a vastly higher 21%.

     - Poor Correlation Between Retail Sales and VAT Receipts.

     Logically, given m/m retail sales (incl. fuel) recorded its worst December

outturn since 2000, one might expect VAT receipts to also come in weak but the

correlation between y/y growth in VAT receipts and y/y ex-fuel retail sales is

slightly negative. As Chart 2 shows below, since the start of 2011 (when VAT was

hiked to 20%) growth in receipts has remained fairly stable even as sales

volumes rose in late 2013 and, more recently, since the slide in sales

commencing in October 2016.

     - Stamp Duty Receipts Could Fall. 

     Even if corporation tax revenues pick up and continue to be supported by

robust PAYE NICs revenues, some offset could come in the form of lower stamp

duty income. The Autumn Budget (Nov 22) saw the Chancellor abolish stamp duty

for some first-time buyers, with immediate effect. This would have been too late

to filter through into the November figures and possibly even too early for

December's pack, but some fall-back in these receipts will be expected to

manifest itself at some point in the near-future.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

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