UK posts first July budget surplus since 2002 as tax receipts rise

Contrails or vapour trails made by passing aircraft in the sky above the Houses of Parliament: AFP/Getty

Britain posted its first July budget surplus in 15 years last month as payments of self-assessed income tax poured in.

Revenue exceeded spending by £184m compared with a deficit of £308m a year earlier, the Office for National Statistics said on Tuesday. The median forecast in a Bloomberg survey was for a deficit of £1bn.

It left the shortfall in the first four months of the fiscal year at £22.8bn, up 9 per cent on the year.

July is a good month for the public finances, with the Treasury receiving higher-than-normal receipts of income tax. Self-assessed receipts jumped 11 per cent from a year earlier and there was also a boost from value-added tax revenue, which rose 5 per cent.

But spending remains under pressure from higher inflation, making interest payments on index-linked government bonds more expensive. Debt costs in the fiscal year to date rose by 23 per cent, the biggest increase for the period since 2010. Spending is also being boosted by timing issues relating to payments to the European Union, which have risen by more than half in the year to date.

The Chancellor of the Exchequer, Philip Hammond, is hoping to limit borrowing to £58bn in the current fiscal year, as forecast by his budget watchdog in March. Borrowing in 2016-17 was £45.1bn, revised down from a previous estimate of £46.2bn.

The deficit has fallen from 10 per cent of GDP in 2010 to 2.3 per cent last year. But while Mr Hammond is pledging to balance the books by 2025, any shock to the economy from Britain leaving the EU could blow his fiscal plans off course.

July is also a big month for corporation tax, though receipts fell this month due to methodological changes that mean such payments are spread more evenly throughout the year.

A cash measure that determines bond issuance was in surplus by £6.9bn last month.

Bloomberg