End of bonus tax drives borrowing to record high

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The Independent Online

The public finances suffered an unexpected deterioration last month, with one-off factors such as the end of the previous government's tax on bankers' bonuses pushing borrowing to its worst April on record.

The figures, which mark a disappointing start to the new fiscal year, highlighted the Coalition's challenge as it pushes through an austerity agenda to trim the bulging budget deficit.

The Office for National Statistics (ONS) said public sector net borrowing stood at £7.7bn last month – around £2.5bn higher than last year, making for the worst April on record. The Government's preferred measure, which strips out temporary effects of interventions in the financial sector, stood at £10bn last month – up from £7.3bn in the same month last year.

The latter was expected to come in at around £6.5bn, according to forecasters at IHS Global Insight. But economists said the data needed to be treated with caution, as last year's result was aided by the Labour government's tax on bankers' bonuses.

Carl Emmerson of the Institute for Fiscal Studies (IFS) said the fall in tax receipts behind the grim reading for this April was "more than explained by the £3.5bn that was received in April 2010" from the bonus tax, which is being replaced with a levy on the banking industry. "Stripping this out suggests that growth in receipts in April 2011 was in line with Office for Budget Responsibility's [OBR] forecast for the year as a whole, with particularly strong receipts of the national insurance contributions offsetting growth in corporation tax that was much weaker in April than forecast for the year as a whole," he explained.

The point was repeated by the Treasury, which highlighted the one bright spot in the figures, namely the revision of last year's borrowing numbers.

The ONS said public sector net borrowing excluding financial interventions in the year to March stood at £139.4bn, down from £141.1bn. "One-off factors affected borrowing this month, but it is clear from the downward revision to last year's borrowing figures that the Government's deficit reduction strategy is making headway in dealing with our unsustainable debt," a Treasury spokesman said.

Government spending in April was 5 per cent up on the same month last year, according to the data, which comes shortly after the OBR forecast that spending for the current year as a whole would be 3.8 per cent above last year's levels.

But despite spending running higher, the IFS warned that it was too early to make judgements about the year. "Spending grew more strongly in April than was forecast by the OBR for the year as a whole... this was due to strong growth in welfare payments," Mr Emmerson said. "However, as this is only the first month of the financial year, these figures on their own give us little clue as to how borrowing will compare to the OBR's Budget forecast for the year as a whole."



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