Government revenues decimated since November PBR projection - 22 per cent fall in corporation tax alone

The dramatic deterioration of the public finances was laid bare by Treasury figures showing that the total Government tax receipts in 2008/09 were over 9 per cent below the Chancellor's forecast made only five months ago in the November 2009 Pre-Budget Report.  The outturn of £496 billion for 2008/09 fell £50 billion below target - a shortfall exceeding the combined government spending on transport, housing and the environment.

Although National Insurance proceeds (£98 billion) were in line with the target, income tax revenues were over 10 per cent below forecast at £141 billion, undoubtedly due in large part to shrinking City bonuses and higher unemployment.

Even more serious was the 23 per cent fall in corporation tax receipts to the anaemic level of £45 billion which, as the Chancellor acknowledged, reflected a general reduction in profitability over almost all sectors of the economy.  The reduction in VAT receipts by 22 per cent to £64 billion was also dramatic, although this was partly due to the Chancellor’s temporary reduction in the standard rate from 17.5 per cent to 15 per cent from 1 December 2008.

The sole bright spot (from the Chancellor's perspective, if not, perhaps, the Secretary of State for Health) was the level of excise duties which came in at £44 billion, 5 per cent in excess of expectations.

Stephen Herring, Senior Tax Partner, at BDO says: “These shocking tax collection figures emphasise the severity of the decline in tax revenues and highlight the daunting task facing Mr Darling (and his successors) to bring the public deficit within sustainable parameters.  As the Chancellor acknowledges, the decline in the fortunes of the financial and real estate sectors have had a drastic impact on income tax, corporation tax and split receipts, and a key challenge must be to support business sectors of the business that can generate economic growth and, ultimately tax revenues over the coming years."

Stephen continued: “In my view, the Chancellor must ensure that the UK maintains its position as an attractive location for inbound investments and guarantee that future tax increases do not inhibit this.”

-Ends-

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