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Govt borrowing higher than expected in July

Treasury 480

Government borrowing was higher than expected in July with £557m extra borrowing compared to a surplus of £2.8bn in the same month last year.

Data from the Office for National Statistics shows public sector net debt stood at £1,032.4bn at the end of July, equivalent to 65.7 per cent of gross domestic product, compared to 61.8 per cent last year.

July is typically seen as a high yielding month for the Treasury as the deadline for income tax self-assessment is July 31.

The ONS says tax revenues from Olympic ticket sales are being carried over to August for practical reasons which may lead to lower borrowing figures.

National Institute of Economic and Social Research Jonathan Portes says the figures are “worse than expected”.

He says: “We are seeing weak tax receipts which are consistent with a generally weak economy and low earnings growth while spending carries on. It fits the view that the economy is flat and worse than was forecast by the Office for Budget Responsibility.”

The figures also show that the Special Liquidity Scheme, which ended in January, made a £2.3bn profit for the Government, which was paid in the form of a capital grant to central Government from the Bank of England in April.

Capital Economics UK economist Vicky Redwood notes that the timing of self-assessment tax receipts may vary, so August could see more than usual come through. In addition, the drop in corporation tax owed mainly to a fall in oil and gas receipts linked to the closure of the Elgin gas field.

She adds: “Nonetheless, a deterioration has been seen for several months now. Indeed, at this rate, borrowing for 2012/13 overall will massively overshoot the OBR’s forecast of £120bn (ex. Royal Mail effects) by over £35bn.

“And with the recovery falling well short of the OBR’s expectations, we think that the Government will struggle to cut borrowing at all next year either.”

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