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UK surplus lower than expected at £1bn despite corporation tax boost


The ONS said public sector net debt excluding banks climbed by £35.3 billion to £1,604.2

The ONS said public sector net debt excluding banks climbed by £35.3 billion to £1,604.2

The ONS said public sector net debt excluding banks climbed by £35.3 billion to £1,604.2

The UK's public finances reached a lower-than-expected surplus a month after the Brexit vote, despite a bumper haul from corporation tax receipts.

The Office for National Statistics said the surplus - which does not include public sector banks - hit £1 billion in July, down £200 million compared with the same month last year.

Economists were pencilling in a figure of £1.6 billion.

Britain's finances tend to enjoy a strong July as self-employed people pay their income tax and businesses settle their corporation tax bills.

The Treasury's coffers were boosted by a 3.4% rise in tax receipts to £61.8 billion last month, compared with July last year.

The jump was fuelled by an 8.4% rise in corporation tax to £7.5 billion - its strongest July since 2011 when it reached £8.6 billion.

But it was partly offset by a fall in tobacco taxes, which slipped 38% to £800 million over the period.

Samuel Tombs, chief UK economist of Pantheon Macroeconomics, said July's "relatively small surplus" means Chancellor Philip Hammond will only be able to muster a small package of measures to boost the economy in the Autumn Statement.

Mr Hammond previously indicated that the Government could take advantage of the cheap cost of borrowing to push fresh investment into the UK in the hope of bolstering productivity.

The move would be a departure from the economic direction plotted by former chancellor George Osborne, whose aim of achieving a budget surplus by 2020 was scrapped by Prime Minister Theresa May.

Despite July's lower-than-expected surplus, Government borrowing in the financial year to date made for brighter reading, as it fell £3 billion to £23.7 billion compared with April to July last year.

The ONS said public sector net debt excluding banks climbed by £35.3 billion to £1,604.2 billion over the period, the equivalent to 82.9% of gross domestic product (GDP).

David Gauke, Chief Secretary to the Treasury, said July's surplus means the British economy " starts from a position of strength" in the face of any incoming economic turbulence triggered by the Brexit vote.

He added: "As we keep working to cut the deficit, we are well placed to handle any challenges and seize the opportunities as our economy adjusts. We are determined to build on our economic strengths to ensure Britain is a country that works for everyone."

The Government saw national insurance contributions rise 6.9% to £9.7 billion in July, the ONS said.

VAT receipts picked up 1.3% to £11 billion over the period and income tax lifted 1.9% to £18.9 billion.

Taxes on interest and dividend payments surged by 79.9% to £1.8 billion.

However, the overall rise in tax receipts was met by a 1.4% climb in Government expenditure to £58.4 billion last month.

HSBC economist Elizabeth Martins said it was too early to point to the impact of the EU referendum result on the public borrowing figures, b ut she said the lower-than-expected surplus shows the "challenges the Government was already facing to meet its ambitious targets".

She added: "Theresa May has suggested that targeting a surplus is no longer a priority, and Chancellor Philip Hammond has promised a 'fiscal reset'. Both the performance of the public finances so far, and the circumstances of the Brexit vote and likely fiscal response, make it unlikely, in our view, that the deficit will meet the Office for Budget Responsibility's forecasts for 2016/17.

"Their numbers from the March 2016 Budget saw borrowing falling by £20 billion, or 26%."

Labour shadow chancellor John McDonnell said: "The UK economy needs immediate investment from the Government, rather than sticking to the failed policies of George Osborne which have helped create the problem. Britain is on hold waiting for Philip Hammond to tell us whether he will stick to his predecessor's planned cuts to investment, and firms and households can't wait until the autumn to find out."