August corporation tax down as UK borrowing soars

Pressure is again mounting on Chancellor George Osborne's increasingly shaky debt reduction plans after the latest figures for July show government borrowing sinking ever deeper into the red.

In a traditionally strong month for tax, both income tax and corporation tax receipts were down while government continued to increase its spending, which was up by 5.1%, mainly due to welfare payments.

New figures for the first five months of the financial year show the deficit is now more than 26.7% over target, hitting an all-time high of £14.41bn in August, up from £14.37bn in the same month last year. The official borrowing target for the whole year is an increase of just 0.5%.

But this was still better than the gloomy prediction of economists who believed borrowing would break the £15bn mark for the month. This was helped by a £500m windfall of Olympic ticket sales.

The UK's national debt has now increased to stand at £1.04 trillion - some 66.1% of GDP.

The main rate of corporation tax also fell from 28% in 2010-11 to 26% in 2011-12, which will have impacted on the total tax take.

Corporation tax receipts in April to August 2012 were 6.3% at £1.08bn, largely driven by a fall in oil and gas revenues due to a major leak in the North Sea's Elgin gas field.

Both the British Chambers of Commerce and the CBI say they expect the government to now borrow £20bn more than planned this year. And the wider borrowing trend is set to keep rising despite some £18bn being slashed in the Chancellor's austerity drive.

Bank of England governor, Sir Mervyn King, has suggested that the debt reduction target will be missed, said this would be "acceptable" providing it could be attributed to a slowing of global growth.

The public coffers are down thanks to poor tax receipts and higher spending due to slower growth. In August, receipts were £41.4bn, a 1.8% fall on the same month last year. For the first five months together, though, receipts have been up by 0.4%. Spending in August was 2.5% higher than 2011 at £52.5bn, and is so far 3% higher than for the year to date in 2011.

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