Royal Mail share sale will not help UK to hit budget target - ONS
By David Milliken
LONDON (Reuters) - The British government's sale of 2 billion pounds ($3.22 billion) of shares in Royal Mail last month will not count towards a key budget deficit reduction target, the country's statistics agency ruled on Tuesday.
In a move that surprised some economists, the Office for National Statistics said October's share sale will not reduce the government's preferred borrowing measure, though it does mean Britain will borrow less from financial markets.
The news risks generating unwelcome headlines for the government when it already faces criticism for selling the 60 percent stake in Royal Mail too cheaply, as the company's share price has risen by two thirds since privatisation.
The ONS said the privatisation would increase public sector net borrowing by 300 million pounds, to account for the cost of giving 10 percent of Royal Mail's shares to its staff.
"It does sound intuitively strange that a privatisation should increase borrowing rather than reduce it," said Investec economist Philip Shaw.
Reducing Britain's budget deficit is the main goal of the Conservative-led coalition government which came to power in May 2010 at a time when borrowing exceeded 11 percent of GDP.
Britain's finance ministry said the ONS decision was in line with its expectations and with accounts guidelines.
Moreover, chancellor George Osborne did not factor a sum from selling Royal Mail into his deficit reduction plan in March, as it was uncertain then if the sale would go ahead.
Osborne's plan commits the government to cut public sector borrowing - excluding some one-off factors - to 107.7 billion pounds or 6.8 percent of GDP this financial year, from 114.5 billion pounds in the year to April.
Six months into the financial year, the government already looks on track to do better than its target, due to unexpectedly strong growth and revisions to past data.
Tuesday's unfavourable ruling from the ONS contrasts with one in January which allowed Osborne to count some cash from a debt swap with the Bank of England towards his budget targets, which then looked in greater doubt.
The ONS said its decision was in line with one made after the much smaller sale in 2011 of the Tote, a horse racing betting firm, and conformed to European Union rules.
However, it wrongfooted some private-sector economists, two days before the ONS releases October's figures.
Shaw plans to raise his public sector borrowing forecast by more than 2 billion pounds. Deutsche Bank's George Buckley said he had also expected the privatisation proceeds to reduce PSNB.
The sale of shares to the public counted as the government exchanging one type of financial asset - shares - for another, cash, the ONS added.
"This transaction has no effect on the government deficit as it is simply a re-classification of assets in the government balance sheet," the ONS said
Public sector net debt would increase by 100 million pounds.
Britain's public sector net cash requirement - a measure which more closely tallies with the amount of bonds the government needs to issue - would be reduced by 2.0 billion pounds, the ONS said, in line with economists' expectations.
(Editing by Andrew Heavens)
