Weakening tax receipts hurt public finances in September

A fall in crucial tax revenues meant the Government borrowed more than forecast last month - with officials unable to provide a link to the Brexit vote.

The Office for National Statistics (ONS) reported a budget shortfall of £10.6bn for September - almost 15% higher than the deficit in the same month last year.

It is a setback for Chancellor Philip Hammond as he prepares to deliver his first Autumn Statement next month having signalled higher spending and tax cuts to aid the economy following its post-EU referendum wobble.

The September figure took the deficit for the first six months of the year to £45.5bn.

While that represents an improvement of 5% on the same period in 2015, it is only £10bn shy of the target set for the entire 2016/17 financial year.

The independent Office for Budget Responsibility (OBR) said it was now clear that this target was "very unlikely to be met" though receipts over the October-March period were likely to leave public finances by the end of the year in better health than trends so far suggested.

The ONS charted the first fall in corporation tax revenues, by £200m, for the month of September since 2009.

Stamp duty income for the Treasury was also lower as activity in the housing market remains jumpy.

The ONS said it was unable to provide a reason for the falls.

Total (LSE: 524773.L - news) tax receipts grew by £1.2bn.

The OBR said it was still too early to assess the impact of the Brexit vote on public finances.

The Institute for Fiscal Studies, a respected economic think-tank, said receipts for the full-year now looked set to fall short of expectations by £8bn for the full fiscal year.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said excessive borrowing had limited Mr Hammond's scope to loosen the purse strings, having scrapped his predecessor's target of achieving a budget surplus by 2020.

"The rise in borrowing in September reflected stronger growth in current expenditure, 3.5%, than tax receipts, 2.6%.

"Tax receipts therefore have continued to grow at a rate well below the 5.1% anticipated in the March Budget."

The Chancellor responded to the figures: "We have already made significant progress in bringing the public finances under control, reducing the deficit by almost two-thirds since 2010, but our debt and deficit remain too high.

"We remain committed to fiscal discipline and will return the budget to balance over a sensible period of time, in a way that allows us the space to support the economy as needed."