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Bank levy and VAT boost Britain's public finances

George Osborne has been given a boost as official figures show that higher taxes and lower spending last month delivered the Treasury’s first surplus in 2011. Analysts welcomed the figures as evidence of the Coalition’s determination to cut Britain’s debts. By Louise Armitstead, Chief Business Correspondent

10:58AM BST 19 Aug 2011


Britain’s public sector net borrowing fell to just £20m - down from £3.5bn in July last year, according to the Office of National Statistics - suggesting that the Coalition’s deficit reduction plans are working. Economists were expecting borrowing to fall to £2.5bn.

The bank levy and the 20pc rate of VAT helped boost tax receipts to £51.5bn from £49.8bn a year ago. Tax receipts, which are usually strong in July, were also boosted by a small rise in National Insurance contributions and corporation tax.

The public sector budget made a surplus of £1.9bn last month, compared to borrowing of £1.35bn in July 2010 - analysts had been expecting a surplus of around £500m.

Michael Saunder from Citigroup said: “Revenues are stronger, spending growth has slowed as it should do. The deficit won’t fall as quickly as I’d hoped six months ago, but it is still clearly falling, and that’s in quite marked contrast to other high deficit countries.


He added: “The UK is the only high deficit country that is on the way back to fiscal sustainability.”

Ross Walker from Royal Bank of Scotland said: “At face value it’s a better than expected outturn. It’s quite an important figures as July is a key month for corporation tax receipts. It’s the first big inflow for 2011. The issue is that with expectations for growth deteriorating sharply, the risk of a hit to tax receipts have increased. But at least as things deteriorate, we’re starting from a strong point.”

Analysts were also reassured that Britain would meet its fiscal targets, despite the uncertainty on global markets.

Victoria Cadman of Investec said: “We’ve been getting a bit more nervous about whether the Chancellor was going to hit his 2011/12 forecasts. It’s early days but this figure makes that look a lot more feasible.”

She added: “There are significant savings on the same month last year -- it makes the savings they need to achieve in the months ahead a lot more feasible. So there’s a bit more reason for optimism.”