Tax receipts on decline for first time in nine years

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The Independent Online

Income Tax revenues fell for the first time in nine years last month while Government spending rose sharply, pushing the public finances into the red official figures showed yesterday.

Income Tax revenues fell for the first time in nine years last month while Government spending rose sharply, pushing the public finances into the red official figures showed yesterday.

The Government had to borrow £3.2bn in May compared with a surplus of £1.5bn in the first month of the financial year.

Inland Revenue receipts were almost 7 per cent down on the same month a year earlier thanks to a 12 per cent plunge in corporation tax.

This was the first year-on-year drop in cash revenues since the end of the last recession in 1993, City analysts said.

"Clearly this is related to the global and domestic economic slowdown," George Buckley, an economist at Deutsche Bank, said. "But with evidence of a recovery still only tentative it may be some time before we see a clear improvement."

Meanwhile Government spending was 10 per cent higher than a year ago while new public sector investment is rising at an annual rate of 61 per cent.

"Concerns over departments' inability to spend their allocations is yesterday's problem," Ross Walker, at Royal Bank of Scotland, said.

Although the shortfall was less than the £3.6bn the City economists had expected, the Treasury benefited from a one-off surge in tobacco duty because of the timing of the Budget.

Michael Saunders, at Schroder Salomon Smith Barney, said the £11bn target for the full-year set by Gordon Brown, the Chancellor, would be under threat unless the economy picked up.

Further evidence of higher state sector activity came from the analysts Industrial Relations Services, which said public sector pay was the key factor in driving average earnings growth to 3.0 per cent from 2.5 per cent at the start of the year.

"It's too early to say whether there's going to be a big overshoot this year, we're only two months into the financial year," Glenn Davies, an economist at Credit Lyonnais, said.

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