Bloomberg News

U.K. Posts Smaller-Than-Forecast Surplus as Taxes Fall

February 21, 2014

A Union flag flies Above the Treasury in London

The Treasury receives large installments of corporation tax during January along with final payments of self-assessed income tax for the previous fiscal year. Photographer: Jason Alden/Bloomberg

Britain posted a smaller-than-forecast budget surplus in January as taxes from incomes and company profits fell.

Revenue exceeded spending by 4.7 billion pounds ($7.8 billion), compared with 6 billion pounds a year earlier, the Office for National Statistics said in London today. A surplus of 8 billion pounds was forecast in a Bloomberg survey. Taxes overall were unchanged on the year and spending grew 0.8 percent.

Statisticians cautioned against reading too much into the figures, saying the weakness probably reflects tax payments being made more promptly last year. Borrowing for the fiscal year to date fell 4.2 percent, leaving Chancellor of the Exchequer George Osborne on course to meet his 2013-14 budget forecasts.

“The bottom line is that the government appears to remain on track,” said Sam Hill, senior U.K. economist at RBC Capital Markets in London. The pound was trading at $1.6676 as of 11:13 a.m. London time, up 0.2 percent on the day.

Consumer spending driven by a booming housing market is helping Osborne tackle a deficit that stood at a record 11 percent of gross domestic product when he took office in 2010.

The deficit in the first 10 months of the fiscal year was 90.7 billion pounds compared with 94.6 billion pounds a year earlier. Tax revenue rose 3.3 percent and spending climbed 1.3 percent.

On Target

If maintained, the full-year deficit would fall to just under the 111 billion pounds -- 6.8 percent of GDP -- forecast by the Office for Budget Responsibility in December. Osborne will unveil new forecasts in his March 19 budget.

January is the biggest tax month of the U.K. fiscal year, with the the Treasury receiving large installments of corporation tax along with final payments of self-assessed income tax for the previous fiscal year.

Last month was the weakest January since 2010, when the government had a deficit of 2.4 billion pounds -- the only shortfall recorded for the month since modern records began in 1993.

Revenue from incomes and capital gains fell 4.9 percent in January from a year earlier and corporation tax revenue declined 6.1 percent. Value-added tax rose 5.7 percent and stamp duty from property purchases was up 39 percent, or by 300 million pounds.

Property Tax

In the fiscal year to date, stamp duty has risen by 2.7 billion pounds, an increase of 35 percent from a year earlier, the ONS said.

A measure of how much the government needs to borrow by selling gilts showed a central government net cash surplus of 13.7 billion pounds. It left the deficit in the fiscal year to date at 49.7 billion pounds, down from 71.6 billion pounds a year earlier.

The government received 2.2 billion pounds of coupon income from the Bank of England’s gilt holdings last month, taking the total for the fiscal year so far to 31.1 billion pounds. January’s payment boosted cash measures of the public finances but not net borrowing.

Tax is emerging as a key election battleground. The Tories, stressing how the government has cut taxes for low earners and frozen fuel duty, say they want to do more and have pledged to maintain the pressure on public spending and welfare that has reduced the deficit by more than a third under Osborne.

The Labour opposition is seeking to cast the Conservatives as the party of the rich and promising to reverse the cut in the top income-tax rate from 50 percent made by the government last year if it wins power.

While the Tories are behind Labour in opinion polls, they score better on the economy and blame Labour for running up a deficit of almost 160 billion pounds before it lost power four years ago.

Labour’s Treasury spokesman Ed Balls pledged last month to end borrowing except for investment by 2020, a response to a commitment made by Osborne last year to generate an overall surplus.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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