BT3 sale trims July revenue shortfall

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THE Government borrowed pounds 1.5bn last month to cover the shortfall between its spending and tax revenue, reinforcing City hopes that the public sector borrowing requirement will come in below the Budget forecast of pounds 50bn for the year as a whole, writes Robert Chote.

The July PSBR was flattered by pounds 1.8bn of proceeds from the BT3 share issue. Excluding privatisation, the PSBR was pounds 3.3bn, up from pounds 2.3bn in July last year. Receipts were relatively high, buoyed by taxes on self-employment incomes and dividends. This was slightly below City forecasts.

The figures had little impact on the markets. The FT-SE index of 100 leading shares rose 16.7 points to close at 3,025. The pound rose a cent against the dollar and two-and-a-half pfennigs against the mark to end at 81 per cent of its 1985 value against a basket of currencies, up 0.7 on the day.

So far this financial year, the Government has borrowed pounds 14.9bn, compared with pounds 11.4bn in the first four months of 1992/3. Borrowing has risen in large part because of the recession, which has cut tax revenues and forced an increase in spending on benefits.

So far this financial year, Inland Revenue receipts are 0.5 per cent down on the same period of 1992/3, while Customs and Excise receipts are up by 5.5 per cent. Net departmental spending is up by 7 per cent.

John Marsland, economist at UBS, said the deficit was largely a structural problem. He argued that cumulative tax cuts under the Conservatives had lost the Government revenue equivalent to 5 per cent of national output.

Spending on mergers and acquisitions within the UK fell from pounds 1.5bn in the first quarter to pounds 1.2bn in the second, according to the Central Statistical Office.