Spending Figures Re-Ignite UK Tax Fears

by Robert Lee, Tax-News.com, London

22 June 2005

Speculation that UK Finance Minister Gordon Brown will miss his fiscal targets and break his self-imposed 'Golden Rule' has resurfaced after the latest government figures revealed that tax revenues are failing to keep in line with increasing rates of expenditure.

Sluggish sales on Britain's high streets have been largely to blame for reduced growth in tax receipts last month, with slower VAT revenues the major culprit. Overall, tax revenues grew by 4.2% in May compared to a year earlier. Tax revenues must rise by 8.5% to ensure that Chancellor Brown hits his targets and the Golden Rule - which stipulates that the government should only borrow to invest over the course of an economic cycle - remains intact.

However, after the government embarked on a post-election spending spree, the current account deficit pushed up net borrowing to £8.7 billion last month, the highest monthly figure since 1992.

"These figures make grim reading, and vividly illustrate the poor state of the public finances," remarked Shadow Chancellor of the Exchequer, George Osborne.

"Gordon Brown borrowed more money last month than at any time during his eight years in office. His claims to be a prudent Chancellor are becoming a distant memory," he added.

Many analysts warn that the government cannot continue on its present fiscal path without soon resorting to the need for extra tax revenues to plug the gap in its finances.

However, a government spokesman has pointed out that the average government spending over the last two months was lower than the Treasury's own forecast for the year.

"We continue to meet our fiscal rules," the spokesman commented.

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