Leap in tax receipts helps public finances swell to a July record

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The Independent Online

Gordon Brown shook off his fiscal new year hangover yesterday after a jump in tax receipts swelled the public finances to a record for July.

Official figures showed that the Government paid back twice the amount owed on loans than expected in July, delivering a surprise £6.3bn surplus in public sector borrowing. This was nearly £4bn higher than a year earlier.

This boosted the measure of the current budget surplus - the tool for gauging Mr Brown's cherished "golden rule" - to £8.4bn after stripping out net investment. And it pared the shortfall over the first four months of the tax year to £4.4bn, some £1.3bn better than the position this time last year.

The Chancellor is seeking to trim the current budget deficit to £7bn from £13.7bn last year. He is especially anxious to hit his forecasts this year because he needs the electorate to trust him as he prepares to succeed Tony Blair as the Prime Minister.

It was the best July for the Treasury since modern records began in 1998, when the current budget assumed greater importance under Mr Brown's new fiscal rules.

But the Office for National Statistics said the picture was flattered by "special factors" that skewed the comparison with last year. The 11.4 per cent rise in current receipts to £48.2bn was boosted by a one-off surge in self-assessment tax receipts because the payment date fell on a Monday, whereas last year it was a Sunday.

An accounting change that requires North Sea oil companies to pay corporation tax three times a year instead of at quarterly intervals also swelled July's surplus. VAT receipts showed no evidence of losses due to so-called "carousel fraud", which has hit the overseas trade data and this week saw the arrest of 22 suspected perpetrators, rising 6.4 per cent in the first four months of the year.

Meanwhile, the public sector posted a net cash repayment of nearly £10.5bn in July - another record and some £2bn higher than forecast.

Philip Shaw, economist at Investec, said: "For the time being, the numbers are moving in the right direction, but meeting the Chancellor's forecast is still a big ask."

Separate figures showed homebuyers' appetite for borrowing had surged in July, matching the two-year high hit in May. Net mortgage lending by the major banks rose by £5.7bn, up from £5.6bn in June, the British Bankers' Association said.

The Council of Mortgage Lenders said gross mortgage lending hit a record for July. Despite easing by £2bn from June to £30.4bn, it was the second-highest sum on record.