Public finances falter following EU referendum

Jake Cordell
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Philip Hammond has already given up on trying to meet George Osborne's budget targets
Philip Hammond has already given up on trying to meet George Osborne's budget targets (Source: Getty)

Government income shrunk in July with tax receipts missing expectations in the first sign of a post-referendum hit to the public finances.

The government ran a surplus of £977m in July, according to figures published this morning by the Office for National Statistics (ONS), though this was down on predictions for a £1.9bn windfall and less than the £1.2bn surplus clocked up in the same month last year.

Read more: What does the Brexit vote mean for the public finances?

The income, which represents the difference between how much the government spends and how much it receives through tax receipts, took the UK's total public sector net borrowing requirement for the financial year to date to £23.7bn - down from £26.7bn at this point last year.

July is a crucial month for the public finances as the government receives a bounty of tax revenue from self-employed tax returns and corporation tax receipts. Government income was up by 3.4 per cent in the month to £61.8bn, but spending also rose.

Paul Hollingsworth at Capital Economics said the numbers were "the first indication of how the vote to leave the EU will slow progress in reducing the deficit over the coming years".

The government's total stock of debt fell over the month, and the debt-to-GDP ratio also dipped from 83.8 per cent this time last year to 82.9 per cent.

In the aftermath of the EU referendum, the government abandoned its plans to balance the books by the end of the decade, with experts expecting the government's balance sheet to take a multi-billion pound hit as a result of weaker growth, and weaker income, due to Brexit uncertainty.

David Gauke, Hammond's understudy at the Treasury, said: "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."

However, Martin Beck, senior economic advisor to the EY Item Club said: "Seeking to get borrowing back on track is likely to figure low down on the Government’s priorities when it announces the Autumn Statement later this year."

James Sproule, chief economist at the Institute of Directors (IoD), added: "The new chancellor must tread a careful course, taking confidence boosting measures on tax and infrastructure, but not letting the current account deficit balloon to the point that it spooks investors."

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