Last week, the Office for National Statistics (ONS) released provisional estimates of the public finances showing that in July the public sector had:
- a current budget deficit of £5.1 billion;
- net borrowing of £8 billion; and
- at the end of July, net debt was £800.8 billion, equivalent to 56.8% of gross domestic product -- its highest since the measure started in 1974.
ONS said it is the first time the Government has borrowed in July since 1996 and the highest figure for the month since records began in 1993.
July is normally a strong month for the public purse as it includes a quarterly corporation tax bill. But, business tax revenues, which the ONS said were flattered last year by higher oil prices, weighed heavily on the month, down to £6.2 billion from £9.9 billion in July last year.
Accrued income tax for the month was down 13%, while VAT takings were reduced 18% from last year.
VAT 'holiday' to end
At the end of July, Chancellor Alistair Darling stressed that the Treasury could not afford the £12 billion cost of the VAT cut for a second year and the tax would return to 17.5% from 15% from January 1.
Even though business groups have been pressing for an extension of tax breaks to secure economic recovery, any hopes of an extension to the government's "VAT holiday" went out the window with publication of the ONS figures.
Vicky Redwood, of Capital Economics, said the figures underlined the need for "sharp tax rises and/or government spending cuts in the next few years."