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Bumper tax receipts push July public finances to £1.3bn surplus

Published 21/08/2015

Higher income tax receipts are good news for Chancellor George Osborne
Higher income tax receipts are good news for Chancellor George Osborne

Chancellor George Osborne hailed a bumper month for tax receipts as the UK's public sector finances posted a July surplus for the first time since 2012.

The surplus - excluding the effect of bank bailouts - stood at £1.3 billion last month, lower than expected but still a reversal compared to borrowing of £100 million for the same period in 2014.

Treasury coffers were boosted after seeing the best July for income tax related receipts since records began in 1997, generating £18.5 billion in revenues.

The figures from the Office for National Statistics (ONS) mean borrowing for the fiscal year-to-date since the start of April now stands at £24 billion - £7.3 billion, or 23.3%, lower than it was at the same point last year.

It suggests performance on cutting the deficit is running ahead of the latest independent forecast by the Office for Budget Responsibility (OBR) that it should fall by 21.1% for the full 2015/16 period.

Samuel Tombs, senior UK economist at Capital Economics, said: "July's UK public borrowing figures show that the public finances are now benefiting fully from the economic recovery's strength."

Before the recession, July had regularly seen a surplus, averaging £3 billion, thanks to corporation tax receipts, he added. But if last month's trend continued, the full-year deficit could undershoot the OBR forecast by around £2 billion.

However, with eight months of the fiscal year to go it was "too soon to conclude that the Chancellor is meeting his fiscal plans with room to spare and could therefore reduce the scale of the austerity measures set to hit the economy", Mr Tombs said.

The Chancellor said: "With more tax coming in this month than the Government spent, borrowing so far is almost £7½ billion lower than last year."

He said the recovery was "well established" but reiterated with debt at more than 80% of gross domestic product (GDP) "the job is not done".

ONS figures showed a £900 million, or 5.3%, improvement in income tax related payments for July compared to the same month last year, taking them to £18.5 billion. VAT and corporation tax receipts were also up.

Underlying public sector net debt, at £1.51 trillion or 80.8% of GDP, was slightly down on June. But it was higher than in July last year when it stood at £1.43 trillion, or 79.7% of GDP.

Investec's Victoria Clarke said of the figures: "This evidence of a steady narrowing in the deficit will clearly do Mr Osborne no harm in continuing to argue that his fiscal plans are working.

"Further, as the Government moves full swing into work on the impending Spending Review, this may help Mr Osborne in pushing his fiscal cause, as he faces off his colleagues in tough talks over spending settlements."

Martin Beck, senior economic advisor to the EY ITEM Club, said: "There is a good chance that the remainder of the year will see an even greater improvement.

"Not only will strong economic growth support further strong growth in revenues, but the £3.6 billion of fiscal tightening announced in the Summer Budget - the bulk of which comes from in-year spending cuts - will also increasingly take effect.

"We remain of the view that the improvement in public finances over the next few years is likely to be sufficiently strong so that the Government will eventually be able to scale back its planned retrenchment."

Michael Martins, economic analyst at the Institute of Directors, said: "The fact that the Government ran a surplus, for the first time since 2012, highlights the strength of the UK's economic recovery.

"Much of this was due to the strong employment and wage growth we have seen in recent months."

David Kern, chief economist for the British Chambers of Commerce, said progress in cutting the deficit gave Mr Osborne "greater flexibility" in trying to boost growth.

He added: "This must include investing in infrastructure and boosting exports. Only by doing this will the UK be able to build an enterprising economy that can deliver sustained growth over the longer term."

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