UK Coffers Further In The Red

The UK’s public finances have been shown to be further into deficit over the month of August, beyond analysts’ previous expectations, according to official figures released today.

Both of the government’s key indicators of the health of UK public finance reflected a downturn on previous months sending the national coffers further into the red, despite analysts projections of a much smaller drop.

The preferred net borrowing measure was recorded at £9.1 billion, up from £6.7 billion one year earlier. Meanwhile, the secondary net cash requirement measure was down further at £5 billion, down from £3.7 billion in August one year ago.

The figures released today reflected a fall in government revenues, largely through a significant drop in corporation tax yield and a slight decrease in receipts of VAT as a result of weakened consumer spending through five interest rate rises this year.

However July recorded strong surpluses in both calculations, which show that the government could still be on track for fulfilling its previous borrowing targets. Additionally, analysts are quick to point out that August is traditionally a month of deficits in public sector finances, and the sharp fall from last month’s figures can be linked to regular seasonal patterns.

Nevertheless the UK public finances have shown a significant decline which could suggest overspending, or at least some problem with the current UK tax structure that is preventing the same level of collection as seen last year.

One possible explanation for the significant drop in corporation tax receipts is the sharp interest rate increases, which will have hindered business growth and inevitably had an impact on company performance. However, some analysts have claimed that this is too early to bear any reflection to interest rate rises, which could only possibly have started to have an effect on corporate performance later on.

The news will serve to cause new Chancellor Alistair Darling more heartache amidst the high profile Northern Rock situation, which has thrust him into the media spotlight so early in his tenure.

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