July was a rather lean month for the UK government, which is surprising. The public coffers should be overflowing with quarterly corporation tax payments and self-assessment returns. But when Mr Treasury reached into his pockets, he found nothing but lint and an old toffee.
The unexpected impecunity drove up borrowing to hit £600m for the month. This, compared to last year when government actually paid back £2.8bn of debt, leaves a shortfall of £3.4bn.
So where did all the tax money go?
Given that we’re in a downturn, it’s not hugely surprising that self-assessment tax contributions have fallen. But it’s the reduced revenue from North Sea oil and gas companies (prices have been very volatile of late) that has left the largest hole in the public pocket: around £1bn of the £1.7bn drop in corporation tax.
Public sector borrowing for the year, excluding the effects of the Royal Mail pension transfer and banking interventions, stands at £44.9bn, up from £35.6bn from the same period in 2011. This puts the UK’s net debt at £1.032bn, or 65.7% of GDP according to the Office for National Statistics. Not brilliant but a far cry from the 231% high seen in 2008.
If the UK keeps borrowing at the current rate, however, the Office for Budget Responsibility predicts that public borrowing will hit £119m for the whole of the financial year. This would be a significant step backwards in dealing with the deficit. Throw in the results of the CBI's latest industrial trends survey, which shows that factory orders in August have seen the biggest slump since December 2011, and the economic outlook seems very bleak indeed.
All eyes will be on the government’s Funding for Lending to scheme to see whether it can stimulate the economy in the coming months. But chancellor George Osborne is going to be under a lot of pressure to move away from Plan A’s for austerity, and try Plan B for back in the black.