Britain Posts First January Deficit Since Records Began

(Telegraph) – BRITAIN REPORTED its first budget deficit for January since records began as government spending rose and tax receipts fell sharply.

The Office for National Statistics said today that spending by the Government had exceeded its income by £4.3bn.

It is first time the Government has had to borrow in a January since records began in 1993. Economists had expected a surplus of around £1bn.

The figures reflected the impact of the economic downturn on the UK’s finances as tax revenues slumped while spending grew because of measures such as the jobseeker’s allowance.

It will renew pressure on the Government to set out plans to ease the burden on public finances, with many predicting a future of tax rises and spending cuts.

Andrew Goodwin, senior economic advisor to Ernst & Young Item Club, said: “These are pretty ghastly figures and come as somewhat of a surprise given the smaller overshoots of the past couple of months.

“January usually yields a healthy surplus due to receipts from corporation tax and even in the current climate it is surprising to see the government rack up a deficit.”

The pound fell after the release.

The ONS said spending was £4.4bn higher than in January 2009, while receipts were down £4.2bn.

Government receipts stood at £50.5bn as income tax fell 19pc to £19.4bn compared with January last year.

VAT income grew 16pc year-on-year after the rate returned to 17.5pc at the end of the Government’s temporary move to help the economy.

Spending grew to £49.5bn in the month, with layout on social benefits up 3pc at £14bn in January.

The UK’s net debt hit £848.5bn, which is equivalent to 59.9pc of the country’s annual output – the highest proportion for a January since the 1974 financial year.

David Kern, chief economist at the British Chambers of Commerce, said the worse-than-expected January figures further emphasised the dangers facing Britain’s international credit rating.

“The deficit this year reinforces the need for credible and specific deficit-cutting measures in next month’s Budget,” he said.

“As well as explicitly spelling out its medium-term spending plans, it is now necessary for the Government to announce a freeze in the public sector wage bill, and an immediate review into the cost of public sector pensions. This would persuade the markets, and the rating agencies, that the Government is serious about cutting the unsustainable deficit, and enabling the private sector to drive Britain’s recovery.”