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UK Tax Receipts Fall, Borrowing Up

by Robert Lee,, London

23 August 2012

UK tax receipts fell by 0.8% in July, a month that usually sees high receipts, leading to an increase in public sector borrowing. This is only the third time in 15 years that a surplus has not been recorded in July.

July usually records the second highest tax receipts during the financial year. This means a budget surplus is typically seen. Indeed, last year, there was a surplus of GBP2.8bn (USD4.4bn).

This year, however, public sector net borrowing (PSNB) hit GBP0.6bn. After the first four months of the current financial year, PSNB is GBP9.3bn higher than last year. Overall, growth in central government receipts during this period is well below the full year forecast of 3.9%, sitting instead at 1.1%.

In particular, corporate tax receipts have been weaker than expected. Many firms traditionally pay the first corporate tax instalment payment on their 2012 profits in July. The second payment on account for self-assessment (SA) liabilities for 2011-12 was also due on July 31.

SA receipts were up over 20% in July on a year earlier, but, despite the strength of these receipts, overall corporate tax revenue dropped by 20%. The worst figures come from the oil and gas sector. Some fall in receipts had been anticipated, but combined oil and gas production has fallen by 15% in the first half of 2012, with a gas leak causing considerable problems.

Chancellor George Osborne has set out an aim to give the UK the most competitive tax system in the G20. At his most recent Budget in March, he slashed the corporate tax rate to 24%. He plans to lower it further, to 22% by 2014.

The figures are not all grim reading for the Chancellor. Growth in other key receipt streams is closer to full year forecasts. National insurance contributions are in fact performing better than forecast, and value-added tax (VAT) receipts are also slightly above target. The pay-as-you-earn element of income tax is in line with projections.

TAGS: tax | economics | fiscal policy | public sector | corporation tax | United Kingdom | oil and gas | social security | revenue statistics

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