More grim news on the public finances this morning: net borrowing soared to £8bn in July, taking net debt up above the £800bn mark. The UK Government hasn’t had to borrow any money at all in July since 1996, because it’s usually a big month for corporate tax receipts – and although economists were expecting a recession-driven deficit this time round, it wasn’t supposed to be on anything like this scale. The Treasury is trying to claim that there’s nothing really new here, but it’s another frightening reminder of just how far in the red we are – and how long it’s going to take to pay this debt off...
By way of comparison, last July the Government ended the month over £5bn in surplus (i.e. it spent less than its income), so there’s been a swing of about £13bn. Analysts were expecting the deficit to be about £500m tops, so this borrowing is 16 times more than the City was expecting. Ouch. Falling tax revenue was the biggest culprit: July is usually a big month for corporation tax, but this year receipts were apparently down a whopping 38%. Total income from all personal and business taxes dropped £8bn to £44bn – though the mathematicians among you will swiftly note that we’d have barely broken even if this had remained unchanged. And no prizes for guessing why: public sector spending jumped a whopping 10.4%.
With net Government debt now standing at an eye-watering £801bn, or 56.8% of GDP (as you’d expect, this is the highest figure since records began in 1974), today’s figures are a serious embarrassment for the Treasury. However, it’s sticking to the party line, insisting the numbers are in line with its full-year borrowing forecast of £175bn, and blaming the whole thing on those pesky foreigners: ‘In the first half of the year the whole world was in a steep recession and that affected the public finances here in the UK,’ a spokesman said. In other words: it’s not our fault, honest.
Either way, a deficit of this magnitude is clearly going to require the Government – whoever that may be – to take drastic action to start re-balancing the books. That will mean lower spending and higher taxes, both of which will slow the economy’s recovery from recession. Guess which direction the pound has gone in this morning?
In today's bulletin:
July borrowing soars to record high as taxes dry up
Record A-level results fail to quash skill gap fears
Retail sales up as Tesco accelerates banking move
Government told to turn skilled managers away
Businesses get militant about staff web use