Sharp fall in July government borrowing

19 Aug 11
The government borrowed only £20m in the month of July, a fall from £3.5bn last year, the Office for National Statistics revealed today.

By Richard Johnstone | 18 August 2011

The government borrowed only £20m in the month of July, a fall from £3.5bn last year, the Office for National Statistics revealed today.

Total borrowing since the start of the financial year in April is £40.1bn, down £2.9bn from the same four-month period last year, the figures show.

The July borrowing figure was about £2.4bn below market expectations, according to the Office for Budget Responsibility. It said the fall was due to increased tax revenues – government receipts increased by £2.8bn year on year – as well as local authorities and public corporations borrowing £1.8bn less than last year.

The biggest rise in receipts came from VAT, which accounts for around £1.7bn. This is bigger than the rise in government spending year on year, which was only £1bn.

The OBR stressed that July is usually one of the most fruitful months of the year for receipts, as both Corporation Tax and self-assessed Income Tax payments are due. In each of the 12 years before 2009, the public sector repaid debt in July rather than borrowing.

It said that the latest estimate for borrowing in the 2010/11 financial year would be £142.7bn, around £3.2bn lower than it estimated in March.

However, the Institute for Fiscal Studies said that the growth in government receipts, at 5.6% for the month and 4.3% over the four months from April, was below the OBR projection for the year of 7.2%.

Rowena Crawford, a research economist at the IFS, said Corporation Tax receipts were only 1% higher than July last year. She said: ‘Weak growth in receipts in July, particularly from Corporation Tax, should increase concern that borrowing this year will overshoot the OBR’s forecast.

‘The headline numbers are probably gloomier than the true picture, due to changes in the expected timing of tax receipts this year relative to last year, but the government will still need receipts from many of the major taxes to grow more rapidly over the remainder of the year if they are to meet the OBR’s forecast for receipts.

‘The risk to borrowing at the moment appears to be mainly from the receipts side − central government spending so far this year has grown broadly in line with what was forecast in the Budget for the year as a whole.’

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