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UK has highest August budget deficit since 2012 as tax falls

British finance minister George Osborne said on Thursday there will come a point when interest rates rise from record low levels in Britain, and that could be interpreted a sign of economic strength.

[LONDON] Britain had the highest August budget deficit for three years as the tax take from individuals and companies dropped.

Spending exceeded revenue by 12.1 billion pounds compared with a deficit of 10.7 billion pounds a year earlier, the Office for National Statistics said in London on Tuesday. Economists in a Bloomberg survey had forecast a 9.2 billion-pound shortfall. Government income fell 0.6 per cent and spending climbed 1.6 per cent.

The statistics office cautioned against reading too much into the increase in borrowing, saying it reflected a drop in self-assessed income tax payments from the large amount paid in July. Taking the two months together, the 8.5 billion pounds received was the highest on record.

The figures leave Chancellor of the Exchequer George Osborne on track to meet his target of cutting the deficit to 69.5 billion pounds, or 3.7 per cent of gross domestic product, in the fiscal that began in April. In the first five months, borrowing declined by 10.3 per cent to 38.4 billion pounds from 42.8 billion pounds a year earlier.

Osborne has pledged to return Britain to surplus by 2020 by continuing the squeeze on spending that helped bring down the deficit from a record 10.2 per cent of GDP in the aftermath of the financial crisis.

While rising employment and wages are boosting tax receipts, much may depend on how well Britain weathers the slowdown in China, where Osborne is currently leading a British delegation to promote business and cultural ties, and the strongest pound since 2008. Recent figures suggest the UK economy lost some momentum going into the second half.

Government income fell 0.6 per cent last month, with self- assessed receipts falling by more than a half to 600 million pounds, the lowest August on record. July sees large amounts of such tax paid and there was less of a spillover into August compared with previous years, the ONS said. Corporation tax fell 14 per cent from a year earlier.

Spending rose 1.6 per cent, driven by higher day-to-day running costs at government departments.

The measure used to calculate how much the Treasury needs to borrow in the financial markets showed a deficit of 235 million pounds last month. The figure includes 2.1 billion pounds from the sale of government shares in Royal Bank of Scotland Group Plc and 600 million pounds from the disposal of Lloyds Banking Group Plc stock. Net debt was little changed at 1.5 trillion pounds, or 80.6 per cent of GDP.