U.K. May Post July Budget Deficit for First Time Since 1996
Britain probably had a July budget deficit for the first time in 13 years, a month when the Treasury usually gets a boost from quarterly tax receipts.
The Treasury likely posted a shortfall of 600 million pounds ($987 million), compared with a surplus of 5.2 billion pounds a year earlier, according to the median forecast of 16 economists surveyed by Bloomberg News. The government statistics agency is due to release the data at 9:30 a.m. in London today.
“July is normally a fat month, but not this time,” said David Page, an economist at Investec Securities in London. In 2008, July accounted for 12 percent of total tax payments.
The worst recession in at least a generation has ravaged revenue and driven up jobless-benefit payments. Prime Minister Gordon Brown said in April his government expects to sell a record 220 billion pounds of debt in the fiscal year, prompting Standard & Poor’s to warn that Britain may lose its AAA rating.
The Treasury forecast a deficit of 175 billion pounds in the year through March 2010, or 12.4 percent of gross domestic product. In the first three months of the fiscal year, which began in April, the shortfall was 41.2 billion pounds, double the gap a year earlier.
Including the liabilities of banks now controlled by the government, including Bradford & Bingley Plc and Northern Rock Plc, Britain had 798.8 billion pounds of debt in June, or 56 cheap car insurance.6 percent of GDP. That’s the biggest debt burden since 1976, when the U.K. sought an emergency loan from the International Monetary Fund.
Brown’s Austerity
Under the last Conservative administration, the deficit peaked at 7.7 percent of GDP in 1993-94 after a recession at the start of the decade. That prompted years of austerity that Brown maintained for two years when he became finance minister in the Labour government that took power in 1997.
So far this fiscal year, the Treasury has received 10 percent less revenue than a year earlier, with declines in taxes on retail sales, home transactions and the profits of financial firms. Spending curbs and higher taxes are inevitable after the next general election, which Brown must hold by June 2010, economists say.
A cash method of accounting, known as the public sector net cash requirement, may show the government had a surplus of 5.6 billion pounds last month, less than half the 14.5 billion pounds recorded in July 2008, according to the median forecast in a separate survey of nine economists.
The headline deficit figure is calculated on an accruals basis, which smoothes out payments over a period of months.
For Related News and Information: