www.independent.co.uk/news/uk/politics/d...t-month-8069220.html
Deficit reduction blow as figures reveal Government borrowed £3 billion more than expected last month
Public sector finances suffered from a 20 per cent fall in corporation tax receipts from business while public spending rose by 5 per cent, fuelled by higher benefit payments.
Oliver Wright
George Osborne's attempt to cut Britain’s deficit was dealt a blow today when official figures revealed that the Government borrowed £3 billion more than expected last month.
Public sector finances suffered from a 20 per cent fall in corporation tax receipts from business while public spending rose by 5 per cent, fuelled by higher benefit payments.
Overall public sector net borrowing came in at £600 million in July, compared with a surplus of £2.8 billion in the same month last year. City's expectations had been for a surplus of £2.5 billion.
Public sector net debt now stands at above £1 trillion, compared to £940 billion a year ago, and represents 65.7 per cent of the UK's GDP, up from 61.8 per cent last year.
July is normally a strong month for tax income, but total receipts fell 0.8 per cent, driven by the drop in corporation tax. The poor figures were compounded by a revision of net borrowing for April to June, which was revised up by £1.4 billion. It means net borrowing is £44.9 billion, £9.3 billion higher than a year ago.
The disappointing figures are likely to put pressure on Mr Osborne to cut back on departmental spending still further.
At the weekend it emerged that civil servants in the Treasury have been privately warning colleagues across Whitehall to prepare for a fresh round of cuts following the disappointing tax receipts. These cuts could come as soon as his autumn spending statement.
“There’s a lot of nervousness and other officials are talking to their oppos [opposite numbers] in spending departments,” said a Whitehall source. “They are saying we haven’t got enough cash and expect a much, much harsher environment.”
Labour seized on the figures suggesting they provided yet more evidence that the Government economic strategy was failing and that it failure to promote growth was making the recession worse
“This is a damning indictment of a Chancellor who promised to secure the recovery and get the deficit down,” said Rachel Reeves Shadow Treasury chief secretary.
“His failed plan has delivered the exact opposite - a double-dip recession which is leading to soaring borrowing. What more evidence does the Government need that their plan has failed and they need to change course?
“Unless the Chancellor takes urgent action now, he will end up not only borrowing billions more to pay for economic failure but he risks causing long-term damage to our economy too.“
Vicky Redwood, UK economist at Capital Economics, said the public finances figures continued to show the deterioration seen over the past few months.
“At this rate, borrowing for 2012/13 overall will massively overshoot the Office for Budget Responsibility's forecast of £120 billion.
“And with the recovery falling well short of the OBR's expectations, we think that the Government will struggle to cut borrowing at all next year either.”
A Treasury spokesman said part of the issue was with a loss of North Sea oil production.
“Tax receipts are coming in below forecast but this is mostly explained by the weakness in corporation tax, especially from North Sea oil production,” they said.
“The Government's fiscal mandate deliberately allows the automatic stabilisers to operate in response to weakness in the global economy, but it is still too early in the financial year to draw firm conclusions about the year as a whole.
”The Government remains committed to the credible plan we have set out to deal with Britain's debts, and today's numbers emphasise how risky it would be to deliberately increase borrowing.“
The figures came as manufacturers responding to the Confederation of British Industry's monthly Industrial Trends survey pointed to prolonged weakness in the economy.
Anna Leach, CBI Head of Economic Analysis, said: ”The economic environment for UK manufacturers remains challenging, with domestic demand relatively muted and the ongoing Eurozone crisis now seeming to drag on broader global economic momentum.“
