Sunday, 1 March 2009

Recession Hits Government Coffers Too!

We're all feeling the effects of the recession, but many might be surprised to hear jst how much it is now taking its toll on public finances, addording to recently released official figures.

The UK's public sector finances recorded a surplus of £8.4bn in January, well down on the £15.3bn surplus in the same month last year.

Government borrowing for the first 10 months of the financial year now stands at £67.2bn. The chancellor has forecast borrowing for the full year of £77bn.

The year-on-year drop in January's surplus was largely due a slump in tax receipts, which fell by £7bn.

Government borrowing now stands at 47.8% of the UK's economic output. Last January, it stood at 42.2%.

"It's clear that public sector finances are deteriorating quite rapidly," said Amit Kara at UBS.

"The tax take is being hammered by the recession," commented Howard Archer, economist, Global Insight

January is traditionally a good month for the public finances as they are boosted by annual tax receipts, however, these have been hit by falls in income tax caused by rising unemployment and the curbing of bankers' bonuses in the City, and by falls in corporation tax as businesses' profits suffer during the recession.

The temporary cut in VAT from 17.5% to 15% has also affected tax revenues.

The Office of National Statistics, which releases the public finance figures, also said that it plans to incorporate the finances of the Royal Bank of Scotland (RBS) and Lloyds Banking Group into the public finance balance sheet. It said this could add between £1 trillion and £1.5tn to public sector.