UK posts first January deficit since 1993
Britain posted its first budget deficit for January since monthly data began in 1993 as the recession shriveled the nation’s tax take.
British government spending exceeded revenue by £4.3bn last month, the Office for National Statistics said today.
Economists had forecast a £2.6bn surplus, according to a Bloomberg News survey.
The pound fell after the release showed Britain failed to generate a surplus in the biggest tax-collection month of the year as the health of public finances around Europe attract investor scrutiny.
With an election due by June, the figures increase pressure for a more aggressive deficit-cutting program than planned by Prime Minister Gordon Brown’s Labour government.
“This is potentially very worrying,” James Knightley, an economist at ING Financial Markets in London, said in a telephone interview.
“Given the concerns about public deficits around Europe at the moment, this could put the UK back in the spotlight. It may mean politicians have to take even more austere measures than what is already being talked about.”
The political debate over how to tame the deficit has taken center stage as some investors and the opposition Conservatives warn that Britain could lose its top credit rating without faster action.
At more than 12pc of gross domestic product, the UK budget deficit is on a par with that of Greece, where bonds have plunged in recent months amid investor concern the country may be unable to fund itself.
“These appalling figures illustrate the scale of Labour’s debt crisis,” Philip Hammond, who speaks on treasury affairs for the Conservatives, said in a statement.
“The prime minister must now heed the advice of leading economists and business leaders and set out a credible plan to get the deficit under control, starting this year. The longer he delays, the more the recovery and our credit rating will be put at risk.”
Based on accrual accounting, central government spending rose 9.7pc and tax receipts fell 7.7pc the statistics office said.
Lower revenues from income tax and capital gains led the decrease, overshadowing an increase in value-added tax after a temporary cut in the VAT rate expired.
A measure of the actual cash entering and leaving the British Treasury showed a £11.8bn surplus in January.
Economists predicted a £20bn surplus. Net debt stood at 59.9pc of GDP.
January’s figures reflect self-assessed income tax payments for the fiscal year through March 2009, when the recession killed jobs, share prices tumbled and income from dividends and savings fell. Taxes on company profits also fell on the year.
With two months of the current fiscal year remaining, the deficit including government support for the financial sector stood at £122.4bn, more than double the level a year earlier.
The Treasury said in a statement today it expects the deficit to meet its full-year forecast of £170.4bn.
British Prime Minister Gordon Brown, with his Labour Party trailing in opinion polls, says Conservative plans to start cutting spending this year risk wrecking the recovery.
Finance Minister Alistair Darling plans to cut the deficit by 2014, starting the process next year. He this week rejected a call by 20 economists to eliminate the structural deficit in the next five years.
“It’s really going to be after the election we get the concrete detail from whoever’s the new government, probably the Conservatives, so it’s a nervy time and I don’t think the markets are going to like it too much in the build up to the election,” Alan Clarke, an economist at BNP Paribas in London, said in a telephone interview.