Surge In Corporate Tax Receipts Lets Brown Off The Hook

by Robert Lee, Tax-News.com, London

22 February 2006

Healthy profits by UK companies last year combined with generous bonuses handed to workers in the City and financial services sector have contributed to a surge in tax receipts, dissipating fears that Chancellor of the Exchequer Gordon Brown will have to raise taxes to keep his cherished 'Golden Rule' intact.

Figures released by the Office of National Statistics on Monday revealed that the Treasury received GBP21.1 billion more in tax than it spent during January, which, according to the ONS, represented the largest monthly surplus since modern records began in 1984.

Although January is traditionally a strong month for tax receipts in the UK, revenues nonetheless were 14% higher last month compared with January 2005, driven by an unusually large 52% increase in corporate tax revenues, which totaled GBP10.8 billion.

As a result, the public sector ran a surplus of GBP12.6 billion last month - the highest since January 2000. After 10 months of the financial year the deficit stands at GBP29.8 and Brown now looks on course to meet his forecast of a GBP37 billion deficit with two months of the fiscal year remaining.

Corporate profitability in the UK, particularly in the oil sector, is thought to have played a major part in the surging corporate tax revenues, whilst income tax receipts have been buoyed by City bonuses. A more draconian approach to tax avoidance has also contributed.

According to analysts, the bumper revenue harvest alleviates fears that Brown will be forced to increase taxation to cover his spending and borrowing commitments, and he is likely to continue to meet his self-imposed Golden Rule of borrowing only to invest rather than to cover recurrent expenditure. However, many economists remain concerned about the long-term health of the UK's public finances.

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