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UK Tax Revenues Jump

by Robert Lee, Tax-News.com, London

24 May 2010


The UK government received an unexpected tax windfall last month as the latest official figures on revenue and spending show that the pace of deterioration in the public finances was slower than expected.

Provisional estimates from the Office of National Statistics show that public sector net borrowing was GBP10bn (USD14.4bn) in April 2010. This was still a record for the month and GBP1.1bn higher than in April last year, but the figure came in over GBP1bn lower than forecast.

The current budget deficit and net borrowing for 2009/10 have both been revised downward by GBP7.5bn. The largest monthly revision for net borrowing is for March 2010 at GBP5.5bn. This is largely due to the availability of firmer data for tax receipts, which has replaced data that had previously been partially estimated. Overall revisions to earlier months were driven by a combination of higher tax receipts and reduced expenditure by central government.

There were notable increases in revenues from National Insurance contributions and value-added tax (VAT), which increased 22.4% and 34%, respectively, year-on-year in April. The increasing VAT take can be attributed partly to the conclusion of the year-long temporary 2.5% cut in the VAT rate, which ended on December 31, 2009. The government has also received a GBP2bn boost as a result of the one-off bank bonus tax, although this is not due to be paid until August 2010.

The budget deficit for 2009/10 has now been revised down to about GBP156bn - almost GBP11bn lower than that forecast by previous Chancellor Alistair Darling.

While the figures are encouraging for the new coalition government, which has today confirmed GBP6bn in spending cuts, business leaders warn that the country's fiscal struggles are far from over.

“It is uncertain to what extent the upside surprise to tax revenues reflects recovery in the real economy versus the unexpected strength of inflation in recent months," observed Ian McCafferty, Chief Economic Adviser at the Confederation of British Industry. "However, the new government cannot afford to be complacent. Revised economic and public finance forecasts will be issued over the next few weeks by the new Office for Budget Responsibility. These new forecasts may well show a more persistent deficit than the forecasts presented in the March Budget."

“The coalition government must remain focused on eliminating the bulk of the deficit within a parliament, aiming for structural budget balance in 2015-16, delivered through spending restraint rather than tax increases," McCafferty added.

TAGS: tax | economics | fiscal policy | budget | United Kingdom | revenue statistics

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