U.K. Has Highest August Deficit Since 2012 as Tax Take Falls

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Britain had the highest August budget deficit for three years as the tax take from individuals and companies dropped.

Spending exceeded revenue by 12.1 billion pounds ($18.7 billion) compared with a deficit of 10.7 billion pounds a year earlier, the Office for National Statistics said in London on Tuesday. Economists in a Bloomberg survey had forecast a 9.2 billion-pound shortfall. Government income fell 0.6 percent and spending climbed 1.6 percent.

The statistics office cautioned against reading too much into the increase in borrowing, saying it reflected a drop in self-assessed income tax payments from the large amount paid in July. Taking the two months together, the 8.5 billion pounds received was the highest on record.

The figures nonetheless cast doubt over whether Chancellor of the Exchequer George Osborne can meet his target of cutting the deficit to 69.5 billion pounds, or 3.7 percent of gross domestic product, in the fiscal that began in April. In the first five months, borrowing declined by 10.3 percent to 38.4 billion pounds from 42.8 billion pounds a year earlier.

“While considerable progress has been made in reducing borrowing, the job to consolidate the public finances is not finished yet and perhaps these figures are a timely reminder” as Osborne prepares to announce his Spending Review on Nov. 25, said Philip Shaw, an economist at Investec Securities in London.

Osborne has pledged to return Britain to surplus by 2020 by continuing the squeeze on spending that helped bring down the deficit from a record 10.2 percent of GDP in the aftermath of the financial crisis.

China Slowdown

While rising employment and wages are boosting tax receipts, much may depend on how well Britain weathers the strongest pound since 2008 and the slowdown in China, where Osborne is currently leading a British delegation to promote business ties. There was further evidence Tuesday that the external environment is sapping momentum in the U.K. economy, with a Confederation of British industry survey showing manufacturing export orders at a six-month low.

The pound was trading at $1.5450 as of 11:55 a.m. London time, down 0.4 percent from Monday.

Government income fell 0.6 percent last month, with self-assessed receipts falling by more than half to 634 million pounds, the lowest August on record. July sees large amounts of such tax paid and there was less spillover into August compared with previous years, the ONS said. Corporation tax fell 14 percent from a year earlier. Value-added tax on sales increased 3.1 percent.

Higher Spending

Spending rose 1.6 percent, driven by higher day-to-day running costs at government departments. Methodological changes meant Britain had a deficit of 706 million pounds in July instead of the 1.3 billion-pound surplus estimated last month. The shortfall for the 2014-15 fiscal year was revised up by 2 billion pounds to 90.1 billion pounds.

The measure used to calculate how much the Treasury needs to borrow in the financial markets showed a deficit of 235 million pounds last month. The figure includes 2.1 billion pounds from the sale of government shares in Royal Bank of Scotland Group Plc and 600 million pounds from the disposal of Lloyds Banking Group Plc stock. Net debt was little changed at 1.5 trillion pounds, or 80.6 percent of GDP.

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