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Thursday, 20 August 2009

Borrowing Soars on Low Tax Receipts

While Germany, France, Japan and Hong Kong say they ae out of recession, it continues to take a major toll on the UK public finances, with a huge decline in corporate tax receipts in July and higher welfare costs leading to a net £8 billion deficit, according to the Office for National Statistics.

The nation's overall debt, at £800.8 billion, now accounts for 56.8% of gross domestic product, its highest since the measure started in 1974.

So much for the £7.6 billion net surplus consensus from a Dow Jones Newswires survey of leading-economists-who-need-to-get-out-into-the-real-world-a-bit-more.

Hang on, you say, an £8 billion deficit for the month doesn't sound so bad, because that is only £100 billion per year which is a lot less than the budget. In the financial year to date, which started in April, public sector net borrowing was £49.8 billion against £15.9 billion for the year-earlier period, so £8 billion is a lot better than the £16.6 billion average of the previous three months.

Well, no, actually it is worse because July is normally a month for enormous net receipts because it is one of months when corporation tax receipts are at their highest. Last year there was a surplus of £5.2 billion in July and this is the first July with a deficit since 1996, when there was a different corporation tax payment regime and calendar year end companies paid all their corporation tax in one go on 1 October.

Central government current tax receipts were down 15.3% in July from a year earlier, with corporation tax falling 38%, down to £6.2 billion from £9.9 billion in July last year, the biggest annual tax revenue decline since records began in 1998. Accrued income tax for the month was down 13%, while VAT takings were reduced 18% from last year.

Central government current spending was up 7.5% in July from a year earlier, with net social benefits, including unemployment payments, up 10.4% on a yearly basis.

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