UK Deficit Rises

Although public sector net borrowing was £0.1bn less in June than during the same month in 2013, underlying public sector net borrowing was £2.4bn higher in the first three months of the new tax year, between April and June, than during same period in 2013/14.

Public sector net borrowing stood at £11.4bn last month, according to the Office for Budget Responsibility (OBR), a higher rise than economists’ forecasts of £10.65bn, while for the financial year to date, the public deficit stands at £36.1bn, up 7.3 per cent from a year earlier.

The OBR expects income tax receipts this year to be concentrated towards the end of the year, and predicts a significant boost in January from self-assessment tax returns, due to a shifting of income by many taxpayers to avoid the old 50p top rate of tax.

Commenting on the data, a spokesman for the British Chambers of Commerce said that continuing to reduce public sector borrowing must remain a priority for the Government.

He added that, while there was a slight fall in borrowing over the month, borrowing for the financial year is still higher than a year ago, so, with the way things are right now, the deficit reduction predicted by the OBR appears to be very difficult to achieve.

Analysts are concerned that since the financial crisis, weaknesses in the financial sector and structural changes in the rest of the economy have created a major shortfall in the UK’s ability to generate tax revenue, even as economic growth returns to normal.

Moreover, although the Chancellor hopes that more money will come in through tax by the end of the year from the self-employed, who now make up a higher percentage of the workforce than ever, the Treasury is not sure how many of them are in low-paid work or even whether they will pay tax at all.

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