Public finances record first July surplus for three years

24 Aug 15

Increased tax revenue pushed the public finances into surplus in July for the first time since 2012, the Office for National Statistics has reported.

The monthly Public Sector Finances bulletin said there was a surplus of £1.3bn in the month, an improvement from the £100m borrowed last July.

This was mostly accounted for by a £1.2bn increase in self-assessed income tax receipts, which stood at £7.8bn for the month. However, the ONS highlighted that the proportion of self-assessed income tax recorded in July or August can vary from year to year, so it would not be clear until next month’s report if this represented an overall increase in revenue.

However, as a result of the surplus, public sector net borrowing for financial year to date now stands at £24bn, which is £7.3bn less than the same four months of 2014/15.

Analysing the figures, the Centre for Economics and Business Research said higher wage growth had helped the majority Conservative government make a strong start on deficit reduction in its first few months in office.

Economist Sam Alderson highlighted considerable increases in receipts from both income and capital gains taxes, which were up by 5.2% compared with the April to July period of 2014.

“However, while this would give the chancellor some extra room for giveaways this autumn, some caution should be exercised,” he added.

“We expect that reductions in borrowing in the coming years will be harder to achieve as gross domestic product growth slows, with key drivers such as consumer spending decelerating next year as the current period of ‘noflation’ comes to an end.”

The Institute for Fiscal Studies said the figures represented a mixed bag of news for the government.

“On the one hand, receipts from corporation tax and income tax have continued to perform strongly, in a month when a relatively large proportion of these receipts are received,” senior research economist Rowena Crawford said.

“On the other hand, receipts from VAT are now estimated to have been smaller so far this year than previously thought, and so to have been performing less well than the Office for Budget Responsibility forecast for the year as a whole.

“Overall receipts have performed slightly more strongly over the past four months than the OBR forecast for the whole of 2015/16, though it is too early to judge whether this trend will continue for the rest of the financial year. Central government spending so far has grown less rapidly than forecast for the year as a whole, but is expected to pick up over the course of the year.”

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