Forex Fines Boost UK Public Finances in May

        By Jon Sindreu and Jason Douglas
        LONDON--The British government borrowed less in May compared with the same month last year, official statistics showed Friday, as receipts were boosted by higher tax revenue and a fine imposed on Barclays Bank PLC for failing to control its traders from rigging foreign-exchange markets.
        The public sector in the U.K. borrowed 10.1 billion pounds ($16.1 billion) during the month, the second of the fiscal year that will end March 2016, the Office for National Statistics said. Figures exclude borrowing by state-owned banks. The government borrowed GBP2.2 billion less than in the same month last year, the lowest May borrowing in eight years.
        The shortfall closed due to receipts growing at a faster pace than spending, mostly driven by a boost in income tax and value-added tax revenue.
        Government coffers were also helped in May by receiving a GBP284 million financial penalty from Barclays Bank, after British financial regulators fined the bank for failing to control its traders from rigging foreign-exchange markets.
        Borrowing in April was also revised downwards, as official statistics included a GBP227 million fine paid by Deutsche Bank AG, imposed due to manipulation of Libor and Euribor interbank rates.
        May's figures confirm an upbeat start of the fiscal year for U.K. Treasury chief George Osborne. Mr. Osborne was recently reappointed Chancellor of the Exchequer, after the Conservative Party won a parliamentary majority in a British general election that had the economy as the key battleground.
        The Chancellor's pledges for increased fiscal discipline include the self-imposed target to achieve a budget surplus by 2020. According to estimates by the Office for Budget Responsibility, the U.K.'s independent fiscal watchdog, the Treasury will have to borrow no more than GBP75.3 billion--about 4% of total national output--by March next year in order to meet this target.
        Many economists question whether the government will be able to eliminate borrowing at such a speed, as the Conservatives promised during the election not to raise income tax, value-added tax or national insurance during this five-year period. Mr. Osborne has said it plans to close the shortfall by cutting GBP30 billion in departmental spending and a further GBP12 billion in welfare spending, but is yet to provide specifics.
        In a recent speech, the Chancellor also announced plans for tougher public finance rules, which will write into law the requirement to run budget surpluses "in normal times."
        Regardless of specific policies, however, public finances are very dependent on economic growth and employment. This is because roughly half of the government's budget is committed to expenditure that the Treasury has no direct control over--such as benefits paid each month. A faster-growing economy and higher wages also boosts tax receipts, which tend to narrow the budget deficit.
        The British economy slowed more than expected in the first quarter of 2015--gross domestic product rose 0.3%, compared with 0.6% in the previous quarter--but most economists are confident growth will pick up during the rest of the year.
        Write to Jon Sindreu at jon.sindreu@wsj.com and Jason Douglas at jason.douglas@wsj.com
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        June 19, 2015 05:08 ET (09:08 GMT)

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