UK public finances improve less than expected despite corporation tax boost

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LONDON – Britain’s public finances showed a smaller-than-expected budget surplus in July despite strong corporation tax receipts, according to the first official budget figures since the country’s Brexit vote.

Britain ran a budget surplus – excluding state-owned banks – of nearly 1 billion pounds last month, lower than a surplus of almost 1.2 billion pounds in the same month last year.

Economists had expected a surplus of 1.6 billion pounds, according to the median forecast in a Reuters poll.

Britain typically reports a surplus in July as many companies pay corporation tax and some individuals settle their tax returns.

Corporation tax receipts of 7.5 billion pounds were the strongest for July since 2011.

The Office for National Statistics said its data included forecasts and so any post-referendum impact might not be clear for some time.

Weighing on the budget figures were weaker growth in individual income tax payments than in July last and lower revenues from tobacco tax.

An ONS official said the fluctuations could be due to differences in when the taxes are paid from year to year.

For the first four months of the 2016/17 tax year, public sector net borrowing was 11.3 percent lower than between April and July last year at 23.7 billion pounds.

Britain’s new finance minister Philip Hammond has signalled a less aggressive approach to bringing down the deficit than his predecessor George Osborne and has said he might give the economy a helping hand at the end of this year to cope with an expected Brexit slowdown.

Osborne was already struggling to keep up the pace of fixing the public finances even before the Brexit vote. He failed to meet his target for cutting the deficit last financial year and the size of the deficit in the first three months of 2016/17 suggested the public finances would overshoot this year too.

Britain’s budget deficit stood at 4.0 percent of gross domestic product at the end of the last financial year in March, down from over 10 percent in 2010 but still among the highest for a developed nation.

Before the referendum, Britain’s finance ministry said the economic shock of a vote for Brexit could increase public sector net borrowing by 24 billion pounds in the 2017/18 tax year. In the case of a severe shock, it could rise by 39 billion pounds.

Official figures released earlier this week showed no impact on consumer demand from the vote to leave the EU and little hit to the labour market in July. But economists say it remains too early to gauge the longer-term effect of the vote.

Britain’s future relationship with its main trading partners in the EU is unlikely to be clear until 2019 at the earliest. (Reporting by William Schomberg and Andy Bruce)

((uk.economics@reuters.com; +44 20 7542 5109))

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