Corporation tax decline 'pushes government into the red'

Date: 21st August 2009

The government's deficits grew far faster than expected in July, due in part to falling corporation tax payments from businesses.

According to the new official data, net borrowing hit £8 billion over the course of the month, bringing overall deficits to £800 billion.

Analysts had predicted that the public balance sheet would go £500 million into the red.

Government finances are usually boosted in July by corporation tax returns.

However, profits among UK firms have fallen in the wake of the credit crunch, meaning that this source of revenue has partly dried up.

The government's total tax take, including corporation tax, VAT, capital gains tax and other taxation, came to just over £6 billion for July, well down on the £10 billion taken over July 2008.

Commenting on the data, Gemma Tetlow, a senior research economist at the Institute of Fiscal Studies, said: "[Tax] receipts overall are shrinking more quickly so far this year than the Treasury predicted they would do in the Budget over the year as a whole.

"Meanwhile spending is growing broadly as forecast. As a result borrowing since April has been three times higher than over the same period last year, whereas the Treasury expects borrowing over the whole of this financial year to be twice last years level."

Ms Tetlow added that she expected government tax revenues to grow over the months to come, particularly with the reversal of the VAT cut early next year.