Self-employed taxes contribute to shock deficit rise

Friday 25 September 2015

The Office for National Statistics (ONS) has suggested that a drop in tax revenue from self-employed people has contributed to the increase in the UK’s deficit for the month of August, when it reached its highest level since 2012.

The ONS also pointed the finger at lower levels of corporate tax being paid. Factory orders fell over the month, which appears to hint at a national economic slowdown, at least in the short term.

News of a budget surplus for July 2015, the first in three years, was attributed to an unexpectedly high level of self-assessment tax returns throughout the month.

However, government income fell by 0.6 per cent in August, while spending was up by 1.6 per cent, contributing to a substantial deficit: spending exceeded revenue by £12.1 billion.

The ONS said that it had hoped for higher tax payments from self-employed people in August, as there is a tendency for returns left unfiled in July to carry over, but this did not seem to be the case.

Economists now believe that the government is likely to reduce overall borrowing for this year, but at a lower rate than the target set by the Office for Budget Responsibility (OBR).

Mr Osborne is expected to publish an updated budget forecast at the end of November in the autumn statement, which will explain how the government intends to make £20 billion in cuts before the end of the current Parliament. This is the amount needed to meet the OBR’s current goal when it comes to cutting the overall deficit.

There are suggestions that the OBR may raise its borrowing targets when the report is delivered, but this has yet to be confirmed. In a statement, the organisation said:  “Higher borrowing in August and upward revisions to borrowing (particularly from local authorities) for the April to July period mean that year-to-date borrowing is now only £4.4bn lower than a year ago over the first five months.

“There is some evidence that local authority borrowing could be higher than assumed in the July economic and fiscal outlook, given the latest Department for Communities and Local Government information on local authority current spending. We will be looking at this carefully in our next forecast.”

Despite this, a Treasury spokesperson was keen to play up the positives, telling the Guardian: “Britain’s hard work is paying off with cumulative borrowing £4.4 billion lower than at this point last year. We have more than halved the deficit but there’s more to do with debt remaining higher than 80 per cent of GDP.”

The cumulative deficit now stands at £38.4 billion for the current financial year, compared to the total £42.8 billion of the previous year.  

However, self-employed people are not the only factor that has been having an impact on the UK’s economy. Some investors are becoming more cautious due to a number of international worries, such as the potential long-term stability of the Chinese economy following repeated devaluations of the yuan.

These can have a negative impact on general business and trade, which in turn can lead to lower than expected tax revenue.

By Victoria McDonnell

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