Borrowing prediction jolted by low tax receipts

26 Jun 08
Chancellor Alistair Darling's Budget prediction for borrowing this year already looks vulnerable after the latest public finance figures revealed lower than expected tax receipts in the first two months of this year.

27 June 2008

Chancellor Alistair Darling's Budget prediction for borrowing this year already looks vulnerable after the latest public finance figures revealed lower than expected tax receipts in the first two months of this year.

The figures for May, published by the Office for National Statistics, show that government borrowing stands at £12.7bn so far in 2008/09, which is £4.3bn higher than at the same point last year.

Darling predicted that borrowing would rise by £7bn to £43bn in 2008/09 in his March Budget, but the latest figures suggest it is already running ahead of that target. This has happened because VAT and corporation tax receipts have grown by 3.6% on the same period last year, rather than the 4.8% implied by the chancellor's Budget predictions.

But Gemma Tetlow, a senior research economist at the Institute for Fiscal Studies, cautioned against reading too much into the gloomy figures. 'The government has had to borrow 50% more during the first two months of the financial year than in the same period last year to meet the gap between what it spends and raises in tax revenue,' she pointed out.

'VAT and corporation tax revenues are growing less strongly than Darling predicted for the year as a whole at Budget time, although we are much too early in the financial year to be confident that this pattern will persist.'

She warned that soaring oil prices could weaken tax receipts even further.

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