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Public sector borrowing rises at record level

Public sector borrowing rose in May by £19.9bn., which compares with a rise of £12.2bn in the same month last year.  This is the largest monthly increase since records began.  This means that in the first two months of the new fiscal year, there was a total budget deficit of £30.5bn. Borrowing in April and May was almost 50% up on the same two months last year, when the recent Budget forecast a rise in borrowing for the whole year of only 21%.

 

Gemma Tetlow, a Senior Research Economist at the Institute for Fiscal Studies (IFS) said: “Government borrowing has increased more sharply over the past two months than the Budget predicted for the financial year as a whole. Receipts from taxes on incomes, profits and spending have all fallen faster than projected for the year as a whole, which means that we will need to see receipts perform more strongly in coming months if the Chancellor is to avoid another set of downgrades to his public finance forecasts.”

There is no escape from record rises in government borrowing

There is no escape from record rises in government borrowing

 

Government receipts from income tax, capital gains tax and national insurance contributions was 6.8% lower in May this year compared to the same month in 2008. Taking April and May together, these receipts were down 8.6% compared to the previous year when the Budget is forecasting that they will fall by 7.2% for the whole of this fiscal year.

 

VAT receipts were down 19.0% in May. This is partly due to the reduction in VAT to 15.0%, but this is due to be restored back to 17.5% at the beginning of 2010 and will allow for three months of receipts at the higher rate. However, corporation tax receipts were down 26.9% in May on the same month last year and here the Budget forecasts a drop of 20.5% for the financial year as a whole. It is to be hoped that the recent signs of an upturn will see the return of greater corporate profits.

 

Finally, to add to the problem, the government has to spend more on social benefits as unemployment rises. (See my blogs for Wednesday and Thursday this week). Expenditure on net social benefits rose 7.9% in May on the previous year, and 8.2% when April and May are taken together. This compares with a Budget forecast that net social benefit expenditure will grow by 8.1% during 2009-10. The problem is that unemployment is a lagging indicator and some commentators believe unemployment will rise to 3 million from its current figure of  2.26 million.

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Posted in government borrowing, Public Finances, taxation

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