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£7 billion tax black hole
Joe Murphy, Political Editor19 Sep 2008
A hole of £7billion or more has been blown in Alistair Darling's tax revenues by the economic crisis, economists said today.
Tax receipts are tumbling because of the hit to the banking sector, lower profits in other industries and falling stamp duty as property sales and prices slump.
Treasury officials have ditched forecasts for the public finances announced in Mr Darling's last Budget in March, where he predicted £52billion would come in from corporation tax and a rise in borrowing of 19 per cent.
Instead, corporation tax looks set to net about £45billion and latest figures show borrowing is shooting up by 70 per cent.
The financial sector contributes a quarter of corporation tax revenues, twice the proportion it did 25 years ago, which means the banking crisis will have a big effect.
Higher oil prices could bring in an extra £2 billion to £3 billion, but that would be largely offset by lower VAT bills, a Treasury source said.
Public sector net borrowing hit £10.4 billion last month, the highest August figure since records began in
1993. At that rate Mr Darling would have to borrow £65billion this year - some £22 billion more than he forecast, according to the Institute for Fiscal Studies.
John Whiting, of professional services firm PricewaterhouseCoopers, said the figures could get worse if struggling firms ask for refunds of taxes previously paid. "The 64 billion dollar question is how much tax that companies paid last year will have to be repaid," he said.
"Undoubtedly a lot of companies are already doing that."
Mike Devereux, of the Oxford University Centre for Business Taxation, told the Financial Times that receipts could "easily be £5 billion to £10billion down on what they predicted".
The Treasury is struggling to work out how tough the picture will be when Mr Darling has to unveil new forecasts in his pre-Budget report this year.
Falling share prices will also hit revenue from capital gains tax and inheritance tax, while job losses and lower bonuses in the City will cut income tax and hit spending, reducing VAT revenue.
Reader views (2)
Falling tax-revenues are ok. The Treasury can simply dip into the huge-chest of tax-receipts its been accumulating over the last 10 years of economic-boom....
What do you mean its empty? They weren't saving for a rainy day? They spent it all, on what?!?!
Oh well, guess they'll have to sell-off some of the gold reserves, which is ok given the high-level gold is currently at...
What do you mean they've already done that, and at teh bottom of the gold-market too?!?
- Sean, London, Peoples Republic of Gordon, 19/09/2008 15:08
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Looks like it's time to reduce the size and cost of your monolithic government, Gordon. How about resigning for a start?
- Nobby Clark, Perth, Scotland, 19/09/2008 11:42
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