Corporation tax shortfall dents UK public finances

City A.M. Reporter
Britain's government finances showed an unexpected deficit in July – traditionally a month for strong tax receipts – after a shortfall in corporation tax, especially from the energy sector, data showed today.

The Office for National Statistics said the public sector finances excluding financial sector interventions – the government's preferred measure – showed a deficit of £557m, compared to a £2.8bn surplus in July 2011.

Britain's public finances are highly seasonal, and July typically shows a surplus due to inflows of income tax and corporation tax payments, but this year the North Sea oil and gas output has been unusually low.

For the year to date, public sector net borrowing – excluding financial sector interventions and the one-off boost earlier in the year from a transfer of Royal Mail pension assets to the public sector – totalled £47.2bn, up £11.6bn from 2011.

The government had originally planned to eliminate the structural budget deficit by 2015 with a tough programme of spending cuts and tax rises.

But the weak economy has forced it to extend the planned fiscal consolidation by another two years and Prime Minister David Cameron has warned austerity could last until 2020.