UK borrowing hit by tax income
Updated on 18 September 2009
Government borrowing in August hit a record high, underlying the fragile state of the public finances, writes Neil Macdonald.
The government had to borrow just over £16bn in the month, as the recession cut into tax revenues.
The figure raises the possibility that total government borrowing for the year will come in significantly higher than the Chancellor expected when he announced his budget back in April.
Then, Alistair Darling said he expected government borrowing to be £175bn this year. That's already a mammoth figure and the highest (as a share of national income) that's been seen in Britain since World War II.
With the publication today of August's borrowing numbers, we now have figures for the first five months of the financial year and they show the government has borrowed a total of £65bn, compared to £26bn over the same period last year.
If the public finances continue to deteriorate at this rate, then the total for the year will be £45 - £50bn above the Chancellor's forecast at around £220bn.
Borrowing figures can be very volatile, so it's possible that future months might throw up some unexpected good news. But so far the numbers are not going in the Chancellor's favour and the detail of today's figures are not encouraging.
The borrowing number is the difference between two large totals - the amount the government spends and the amount it gets in through taxation. The figures show that the problem is mainly with the tax side of that equation.
In August, government spending rose by about 2 per cent, but tax revenues fell by 9 per cent. That monthly picture is reflected across the year so far with current expenditure up by 5.3 per cent while revenues have slumped by 11.5 per cent.
Once the economy starts to grow again, tax revenues should pick up. But the difficulty is that there is likely to be a lag between economic growth and revenue growth. Companies and many individuals don't pay their taxes immediately so the damaging impact of the recession may well still be visible in the tax data through this year and into 2010.
If that proves to be the case, the worrying trend in our deteriorating public finances looks set to continue.
