UK government borrows £600m in July as tax receipts dip

Economic Secretary to the Treasury Chloe Smith: "What these figures show is the importance of sticking to the government's plan"

The UK government unexpectedly had to borrow money in July, traditionally a good month for tax receipts.

Borrowing to cover the gap between spending and revenue was £600m in July, the Office for National Statistics said. There was a surplus of £2.8bn in the same month a year earlier.

The Treasury blamed disappointing corporation tax receipts.

Labour said the government's efforts to try to cut the deficit had "choked off the recovery".

Analysts suggest the government could end up borrowing about £30bn more than last year, when official forecasts had suggested borrowing would fall this year.

The Office for Budget Responsibility, the official UK economic forecaster, said there was still "significant uncertainty" about the outlook for borrowing this year.

Four months into the financial year the government has borrowed £44.9bn, £9.3bn higher than the same period in 2011. That excludes banking interventions and the one-off boost in April from a transfer of Royal Mail pension assets to the public sector.

The OBR had predicted that borrowing on the same measure would be £120bn for the whole of the financial year, down from the £125bn borrowed last year.

Policy pressure


As with so many economic releases, there was something for both the government and Labour in these borrowing figures.

Ministers could argue that most of July's drop in corporation tax receipts could be explained by temporary problems with North Sea oil and gas production.

But the fact that underlying borrowing was £9bn higher in the first four months of the financial year than the same time last year gave ammunition to the opposition.

For the chancellor it all depends on growth. A rapid recovery will boost tax revenues and put his deficit reduction plan back on track. Prolonged recession will intensify calls for a change of course.

The government received 0.8% less in tax than a year earlier due to a drop in corporation tax receipts. Income tax, national insurance and VAT held up, while spending, which includes welfare payments, was more than expected.

Labour said the figures were "a damning indictment of a chancellor who promised to secure the recovery and get the deficit down".

"[George Osborne's] failed plan has delivered the exact opposite - a double-dip recession which is leading to soaring borrowing," said Rachel Reeves, shadow chief secretary to the Treasury.

A Treasury spokesman said: "The government remains committed to the credible plan we have set out to deal with Britain's debts."

One economist said the figures would lead to further calls for the government to change course.

"We're going backwards not forwards," said economist Alan Clarke of Scotia Bank.

"It's going to increase pressure on the government to get back on track either by tightening fiscal policy further to make up for the lost ground, or loosening policy in the hope that stronger economic growth improves the public finances."

Labour MP Chris Leslie: "The chancellor is borrowing to cover the cost of economic failure."

Weak economy

July is usually a good month for tax receipts, meaning the government normally makes a surplus, because it is the month that businesses make quarterly corporation tax payments and some tax self-assessment returns are recorded.

But some said this month's figures should be treated with caution as corporation tax receipts are affected by the temporary closure of the Elgin gas field due to a leak.

The ONS also warned that the timing of self-assessment returns - which are recorded in August as well as July - makes direct comparisons between years difficult. More returns than usual may be recorded in August, as the deadline is the last day of July.

Crisis jargon buster
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The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

In previous months, borrowing figures have also been worse than expected.

"It's the same story we've been seeing since the beginning of the year, that tax receipts are down, which is not surprising given the weaker growth performance of the economy," said Gustavo Bagattini from RBC Capital Markets.

Tom Vosa, an analyst at National Australia Bank, said although the monthly numbers were "terrible", "the trend so far isn't disastrous".

"Unless we see a further fall in revenue, the government could possibly still have a small undershoot for the fiscal year as a whole."

The Office for National Statistics said net debt - the sum of all borrowing - was now £1,032bn, or 65.7% of GDP.

The ONS also revised the figure for how much the UK borrowed in the 2011-12 financial year to £125bn. The OBR had forecast £126bn.

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