U.K. Posts First January Budget Deficit Since at Least 1993

U.K. Posts First January Budget Deficit Since at Least 1993


Feb. 18 (Bloomberg) -- Britain posted its first budget deficit for January since records began in 1993 as the longest recession on record shriveled the nation’s tax take.

Government spending exceeded revenue by 4.3 billion pounds ($6.7 billion) last month, the Office for National Statistics said today in London. Economists forecast a 2.6 billion-pound surplus, according to the median of 16 forecasts in a Bloomberg News survey.

Jobless claims rose last month to the highest since 1997 as damage from the recession extended into 2010. The slump in revenue in January, the annual peak for tax collection, adds to the prospect that the budget deficit will reach the post-World War II high of 12.6 percent of gross domestic product forecast by finance minister Alistair Darling.

“There’s just been a consistent procession of data which have been the highest borrowing figure for that month either on record or for many, many years,” Simon Hayes, chief U.K. economist at Barclays Capital and a former Bank of England official, said in a telephone interview before the announcement. “The degree of adjustment that the U.K. needs to go through over the next few years is certainly going to be difficult.”

Tax receipts dropped 11.8 percent compared with a year earlier, outweighing the 10.2 percent decline in total outlays, the statistics office said. Lower revenues from income tax and capital gains led the decrease.

Barclays Plc, the U.K.’s second-largest bank, said on Feb. 16 that it set aside 38 percent of revenue in remuneration for employees at its investment bank, down from 44 percent of revenue in 2008.

Election Battle

The 178 billion-pound budget deficit has taken center stage in the battle to win an election that Prime Minister Gordon Brown must hold by June. Brown has deferred a squeeze on spending until 2011, saying Conservative plans to start cutting spending this year risk wrecking the recovery.

In a letter to the Sunday Times published Feb. 14, a group of economists including former Bank of England policy makers Timothy Besley, Howard Davies, Charles Goodhart and John Vickers said Brown’s plan lacks urgency. Darling this week rejected that call. He plans to cut the entire deficit in half in four years from 2011, reducing the structural gap by two-thirds.

“There is a very strong case for tightening fiscal policy as rapidly as possible over the next few years,” Bank of England Deputy Governor John Gieve told the Daily Mail in an interview published today.

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. Quarterly payments of tax on company profits also pour in during the month.

A measure of the actual cash entering and leaving the Treasury showed a 11.8 billion-pound surplus in January. Economists predicted a 20 billion-pound surplus, according to the median forecast of 11 economists in a Bloomberg survey.

source: bloomberg