The government was required to borrow £600m last month following a slump of almost 20% in corporation tax receipts, figures from the Office for National Statistics and the Treasury revealed today.
This compares poorly with July 2011, when the government recorded a £2.8bn surplus, and prompted economists to warn that the government was set to overshoot the Office for Budget Responsibility’s borrowing forecast.
July is usually a strong fiscal month due to quarterly corporation tax receipts and self-assessment income tax returns. Data published showed that, while income and capital gains tax receipts were broadly consistent with the amount collected last July, corporation tax revenue fell from £8.8bn to £7.1bn, a decline of 19.3%.
The figures also showed the government ran a £1.2bn current budget surplus last month, although this was £3bn lower than in July 2011 when the surplus was £4.2bn.
Nida Ali, economic adviser to Ernst & Young’s Item Club, said the public finances ‘seem to be going from bad to worse with every successive month’.
She added: ‘Part of the increase in July’s borrowing can be attributed to a fall in corporation tax receipts but, for the most part, the increase in borrowing is because of overall weakness in the domestic economy.
‘The jump in government spending and decline in revenues is a genuine cause for concern.’
Vicky Redwood, UK economist at Capital Economics, said the figures ‘continue the deterioration seen over the past few months’. She predicted that the government would be required to borrow £35bn over and above the £120bn forecast by the OBR.
‘And with the recovery falling well short of the OBR’s expectations, we think that the government will struggle to cut borrowing at all next year either,’ Redwood added.
The Institute for Fiscal Studies agreed that the public finance figures continued to be ‘disappointing’.
‘The government will need receipts to grow more rapidly and spending growth to slow over the remainder of the year if they are to meet the OBR's latest forecast that borrowing will fall from £125bn last year to around £122bn this year,’ said Rowena Crawford, the IFS's senior research economist.
‘However, it is still early in the financial year and we should be cautious about inferring too much from data on only the first four months.’
The Treasury also said it was too early in the year to draw firm conclusions about the year as a whole. A spokesman added: ‘The government remains committed to the credible plan we have set out to deal with Britain’s debts, and today’s numbers emphasise how risky it would be to deliberately increase borrowing.’
