The ONS published the fiscal numbers for the first half of the UK Government’s 2019-20 financial year this morning, with the #icaewchartoftheweek illustrating the changes in comparison with the first half of last year.
If revenues had increased in line with economic growth then the deficit would have reduced by £4.5bn (net of the effect of inflation on both revenues and expenditures). Unfortunately, tax receipts have been relatively weak, coming in £3.0bn below growth, with higher national insurance and council tax receipts being more than offset by lower corporation tax, income tax, inheritance tax, fuel duties, excise duties, and stamp duty.
The Government’s preferred measure of the deficit (which excludes government-owned banks) did benefit from £1.8bn in dividends from the Royal Bank of Scotland.
Expenditures were £10.4bn higher than the first half of last year, reflecting more spending on public services (including the NHS), Brexit preparations, a growth in the size of the civil service, and a £3bn or so increase in capital investment.
This means that there is a shortfall of £40.3bn between receipts of £395.5bn and expenditures of £435.7bn in the first half of this financial year, compared with £33.2bn for the same period last time, when receipts were £384.2bn and expenditures totalled £417.4bn. (The first half deficit last year was originally reported as £19.9bn. This was subsequently revised down to £19.3bn before £13.9bn in accounting changes, including irrecoverable student loans.)
Fortunately for the Chancellor, the deficit tends to be much lower in the second half of the year given the boost from self-assessment tax declarations in January. Despite this the deficit could exceed £50bn this year if trends continue, a big disappointment for those who had hoped to continue on the path to eliminating the deficit.
With warning signs over the economy flashing, these numbers do not provide an auspicious backdrop for the Budget on Wednesday 6 November when the Chancellor is hoping to announce a number of major tax cuts.
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