Robust tax revenues from North Sea oil companies helped push Britain's creaking public finances into surplus in July, but the government still faces a protracted battle to meet its full-year borrowing forecasts, official statistics showed yesterday.
Robust tax revenues from North Sea oil companies helped push Britain's creaking public finances into surplus in July, but the government still faces a protracted battle to meet its full-year borrowing forecasts, official statistics showed yesterday.
The Office for National Statistics (ONS) said the public sector posted a net cash repayment of £12.6bn last month. That was less than the £13.3bn repaid in July 2007 but more than the £10bn repayment forecast by City economists.
The government's preferred accruals-based measure - which is less volatile than the cash measure - showed a surplus of £4.8bn, slightly higher than the £4.3bn forecast.
However, the £4.8bn surplus was the smallest for the month since 2005, the ONS stated.
July is traditionally a surplus month due to the timing of corporate tax receipts.
About £4bn of July's £9.9bn of corporation tax was from North Sea companies, more than twice as much as in July 2007. Higher oil prices - crude hit record levels above $147 a barrel in July - prompted North Sea producers to pay more tax.
However, corporation tax from onshore companies was lower than last year when receipts were boosted by the setting up of real estate investment trusts.
Recent public finance figures have been disappointing and public borrowing for the first four months of the financial year is running at £19.1bn, £10.7bn higher than the same period last year.
The government has a full-year borrowing target of £43bn. but many analysts reckon the figure could be closer to £50bn as a slowing economy erodes tax receipts and boosts social security spending. Public sector net debt was 37.3% of GDP, up from 36.1% in July 2007.
City economists said Prime Minister Gordon Brown may find it hard to keep borrowing within the limits he set as chancellor as the economy teeters on the brink of recession.
The slump has damaged his reputation for competent management of the economy and reduced public support for the Labour Party to the lowest since it took office in 1997.
"The slower pace of economic growth this year compared to last year is limiting receipts," said David Page, an economist at Investec Securities. "Public finances are clearly very stressed."
Charles Davis, an economist with the Centre for Economics and Business Research, said: "Going forward, the outlook remains challenging.
"With borrowing and debt on a clear upward trend and the economy set for a period of minimal growth and even contraction, public finances look susceptible to further unscheduled borrowing."
The Treasury usually has a surplus in July and three other months of the year when quarterly corporation tax payments are made. For the remaining months, the government usually reports a deficit.
In March, Chancellor of the Exchequer Alistair Darling forecast economic growth of as much as 2.25% this year and 2.75% in 2009. In its bleakest assessment of the economy in a decade, the Bank of England last week predicted virtually no rowth over the next year and said at least one quarter of contraction is possible.
Shadow Chancellor George Osborne lashed out at the government over what he called the poor state of public finances. "These dreadful public finance figures show that borrowing is out of control, running at almost double last year's already high levels," he said. "Taxpayers will bear the price for his (Darling's) economic incompetence."
