Yahoo Finance UK government's tax income falls by £70bn in six months
Tax income at HMRC has fallen by £70bn ($92.6bn) over the last six months due to coronavirus-linked tax breaks and a shrinking economy.
Figures published by HMRC on Friday showed receipts for April to October 2020 were £70.6bn lower than in the same period last year.
The biggest shortfall came in VAT, where receipts were down by £38.7bn. The chancellor announced in March that businesses could defer three months of VAT payments due to the COVID-19 pandemic. The Treasury is allowing phased repayment of these bills, which delays the time it takes the cash to hit the exchequer.
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In July, the government also announced a temporary cut to VAT from 20% to 5% for the hospitality and tourism sector.
Other major shortfalls came from corporation tax, which was £12bn lower, and income tax, which was £11bn below last year’s levels.
“The fall in corporation tax is huge – almost £12bn over the first six months, suggesting total corporation tax receipts will be down by more than a third over the year as a whole,” said Heather Self, a partner at tax advisory firm Blick Rothenberg.
“As businesses head into a difficult winter, tax receipts are likely to stay low for the rest of the year. In many cases, losses in 2020 will generate tax repayments for the previous year, so there is little good news to come for government coffers over the coming months.”
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Taxes on fuel, air travel, and house sales were collectively down by £9bn. The chancellor announced a temporary stamp duty holiday earlier this year, which hit housing taxes, while the pandemic has led to plummeting levels of travel.
The only tax incomes to rise in the period were alcohol and tobacco tariffs.
While some of the shortfall in tax take is simply deferred payments, the figures underline the serious challenges facing UK public finances.
National debt has soared to more than 100% of UK GDP this year as the government has borrowed huge sums to pay for its pandemic response. This partly reflects the high cost of its interventions but also reflects the fall in tax income.
“Overall, Mr Sunak has a large hole to fill in his bucket,” Self said.
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The chancellor appears likely to address the deficit through a combination of tax increases and lower spending.
An increase in capital gains tax — tantamount to a tax raid on the middle and upper classes — looks increasingly likely, while there is speculation that taxes could also rise for the self-employed.
On Friday, the BBC reported that the government plans to introduce a public sector pay freeze as the Treasury looks to manage costs.
The chancellor has warned that the government faces “difficult” choices on how to repair public finances after the pandemic. Suank is set to deliver a one-year government spending review next week, with reports suggesting he will announce the worst outlook for the UK economy in 300 years.
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