Truly encouraging news has come in the past week on the public finances.
Figures for April show a substantial improvement as the new financial year gets underway.
Public Sector Net Borrowing fell to £6.8 billion in April from £9.3 billion a year previously
The aim is to cut the deficit to £75.3 billion or four per cent of GDP in 2015-16 from £87.7 billion in 2014-15.
|£M||APR 2015||APR 2014||% CHANGE||MAR 2015||% CHANGE|
|Stamp taxes inc ATED||1,143||1,145||(0.17)||970||17.84|
|VAT (3 month ave)||9,409||9,262||1.59||9,828||(4.26)|
|Total HMRC receipts (including duties)||51,132||50,034||2.19||37,581||36.06|
HMRC Tax & NIC Receipts for April 2015
This is a good start- but much depends on a pick-up in growth after disappointing preliminary figures for GDP in the first three months of the year. These showed the pace of economic growth had slowed to 0.3 per cent against 0.6 per cent for the final quarter of 2014. But revised figures may bring an upgrade.
Attention will now swing to the government’s post-election budget scheduled for July 8. Chancellor George Osborne will be under pressure to clarify where the planned cuts to departmental spending (£30 billion) and welfare spending (£12 billion) will be made. There are big doubts as to whether the Conservatives will be able to achieve these cuts. The UK will either have to increase revenues (i.e. raise taxes, despite its election pledge not to increase income tax, value-added tax, or national insurance) or accept slippage in its fiscal targets.
So where has the improvement in tax receipts come from? A marked feature of the latest figures is the improvement in receipts from Corporation Tax, up by 11.3 per cent on the figure for last April to £5.7 billion. The figure is all the more impressive considering that the rate of Corporation Tax has continued to fall.
MARTIN BELL, Tax Partner at BDO LLP, says the figure “demonstrates that the momentum of the UK’s corporate recovery continues. To maintain this, the Conservative government should look at fiscal policies which will bring confidence to mid-sized businesses to invest, grow and improve productivity.”
The marginal increase in income tax and NIC receipts over the same month last year reflects, he says, the continued confidence in the UK economy and positive movements in the unemployment figures.
Of particular note is the fact that increases are again predominantly attributable to PAYE receipts and not self-assessment, indicating that wage stagnation continues to ease off.
The stagnation in Land Buildings Transaction Tax (Stamp Duty Land Tax in the rest of the UK) will be of concern but it may reflect pre-election uncertainty and Labour policies on the mansion tax and a shake-up in non-dom status rules.
The small increase in the yield from VAT – the tax that adds 20 per cent to every product or service outside of food, domestic fuel and clothing – will be a disappointment. However, as the lower rate of Corporation Tax has been followed by higher tax receipts, perhaps the government could follow suit and cut VAT?
Mmm. Dream on.