Weak taxes hit UK public finances

Lower income tax and corporation tax receipts dragged Britain’s public finances to a much smaller than usual seasonal surplus in January, as finance minister George Osborne prepares his annual budget.

By David Milliken And Andy Bruce (Reuters)

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Published: Sat 22 Feb 2014, 11:21 PM

Last updated: Fri 3 Apr 2015, 5:53 PM

Strong performance earlier in the financial year means Osborne still looks on track for public sector net borrowing, excluding financial sector interventions and some other one-off effects, to fall broadly as forecast in December.

But the figures mean that Osborne is unlikely to have any large windfall to play with just over a year before national elections in May 2015.

Other figures released by the Office for National Statistics on Friday showed an unexpectedly sharp fall in retail sales in January, which suffered their biggest monthly decline since April 2012 after a strong December.

Sales were 1.5 per cent down on the month and just 4.3 per cent up on the year — both weaker than expected. The ONS said that weak supermarket sales were the main driver of the decline, and clothes sales dropped sharply too.

British government bond futures fell to a session low after the data, which follows an unexpected fall in inflation and rise in unemployment earlier in the week.

“Official predictions for the annual deficit still look achievable, but nothing better,” said James Knightley, UK economist at ING.

Knightley played down the significance of the fall in retail sales, noting that it came after a strong December and might have been affected by very wet weather in January which kept shoppers away from stores. “With consumer confidence on a strong upward path, employment rising and wage growth starting to show some hints of life, we look for the household sector to contribute strongly to GDP growth this year,” he said.

Britain’s public finances, excluding financial sector interventions, showed a £4.718 billion surplus ($7.86 billion) in January, down from £6.035 billion a year ago on a comparable basis — stripping out the effect of a transfer of debt interest from the Bank of England to the government.

Economists had forecast a surplus of £8.15 billion. Income and wealth tax receipts were 5.2 per cent lower from a year ago and corporation tax was down around six per cent.

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