Public borrowing £1.5bn lower than forecasts in July

Public borrowing came in £1.5bn lower than economists' forecasts last month thanks to a surge of more than 35 per cent in corporation tax receipts.

In total, government net borrowing so far this financial year is £44.9bn, compared with £47.5bn for the first four months of 2009/10, the Office of National Statistics (ONS) said yesterday. In July, net borrowing was £3.8bn, way below both consensus forecasts of £5.25bn and last July's £6.1bn.

The unexpected boost came after tax receipts surged 10.5 per cent to £49.7bn, far outstripping Office of Budget Responsibility (OBR) forecasts of 6.5 per cent over the year as a whole. The biggest boost was from quarterly corporation tax receipts of £6.37bn, more than 35 per cent higher than in the previous year. Over the year so far, corporation tax receipts are running slightly higher than the OBR forecast of a 20 per cent gain.

Although public borrowing has consistently undershot this year, the Treasury expects that the gains will even out and both tax receipts and public borrowing will be in line with forecasts over the year as a whole. Next January's quarterly tax take, for example, includes self-assessment receipts for 2009/10 and is therefore expected to reflect the continued recession in that period.

A Treasury spokesman said: "Tax receipts remain below pre-recession peak and the UK is still forecast to have the highest deficit in the G20 this year."

There is a major political dimension if public borrowing continues to under-shoot projections. But while the Government might claim it as evidence of successful financial management, the Opposition might counter that the need for public spending cuts was exaggerated.