Steep rise for UK deficit follows fall in tax receipts

Income tax receipts have unexpectedly fallen, and as a result, Britain’s deficit has risen to

£12.1bn in August. The figure represents the largest shortfall in government funding since 2012.

The big rise in the deficit follows last year’s figure of £10.7bn and comes in much higher than City analysts' previous expectations of around £9.2bn.

Low tax receipts

Self-assessment receipts fell, and The Office for National Statistics noted that the changing pattern of payments was unexpected because there is usually a crossover of tax receipts from the previous month each August.

However, the combined receipts from this July to August were the highest on record compared to the same two-month period of any previous year.

The ONS also reported that a drop in corporation tax receipts was also a factor.

The Treasury commented: “Britain’s hard work is paying off with cumulative borrowing £4.4bn lower than at this point last year. We have more than halved the deficit but there’s more to do with debt remaining higher than 80% of GDP.”

Slower pace

Chief UK economist at Capital Economics, Vicky Redwood said the targets to reduce annual government borrowing could still be achieved, but at a much slower pacer than the Office for Budget Responsibility (OBR) had previously forecast.

“Borrowing in the first five months of the fiscal year so far is still below where it was at the same point a year ago. But on the face of it, this leaves borrowing for 2015-16 as a whole set to undershoot last year’s borrowing total of £90bn by only £10bn or so, rather than the £20bn drop that the OBR forecast in its July’s budget," Redwood said.