UK Budget Monitoring 2014 / 2015

I thought I would update my previous note on the 2014/15 UK budget forecast with some actual figures to see if the Government is on track to meet its targets.  You may recall that the total Government expenditure for the year is expected to be £732bn.  This is to be financed by tax raising income of £648bn, with the remainder, known as the deficit being met by borrowing of £84bn, equating to around 11.5% of the total expenditure.

Each month HMRC publish an analysis of the various receipts they collect, and, I have used this data for the first three months of the fiscal year (April to June) to populate the table below.  It should be noted that the HMRC receipts list does not include all the forecast income to be received by the Government, two notable exceptions being Council tax, and, Business rates.  I have therefore detailed the the items I do have information about at the top, with a sub total of "HMRC receipts", followed by the other items  in order to show how the expected income of £648bn is derived.  The  headings of the table are as follows:

Receipt – This is a description of the type of income that is being collected.

The next three columns relate to data regarding the 2014 / 2015 financial year.

OBR Forecast – The amount for the fiscal year that is expected to be collected to finance the UK Government expenditure.  The total of this column adds up to £648bn.

Apr - Jun – This is the total that has been collected by HMRC for the first three months of the year.

% – This is the percentage of the overall forecast that has been collected so far.   As this period covers three months it could be expected that many items (as they are) will be around the 25% mark, as the income accrues evenly throughout the year.  It should be noted that there are legitimate timing differences, for example income tax due from self assessment tax returns is not due until 31^st January, 2015.

The next three columns relate to data regarding the 2013 / 2014 financial year, and, are to give an aid in comparison.

Total Income – The amount collected in the previous year, 2013 /2014 by HMRC.

Apr - Jun – This is the total that had been collected by HMRC in the first three months of the previous year, 2013/ 2014.

% – The percentage of the overall forecast that had been collected in the previous year 2013 /2014, to give a comparison to the current year.

		2014 / 2015				2013 / 2014
Receipt		OBR Forecast	Apr - Jun	%		Total Income	Apr - Jun	%
		£'bn	£'bn			£'bn	£'bn
Income tax (gross of tax credits)	}	166.5	35.905	22%		156.898	36.953	24%
- Pay as you earn	}	140.2	36.698	26%		134.686	36.503	27%
- Self assessment	}	27.2	-0.230	-1%		20.854	-0.159	-1%
- Other	}		-0.563			1.358	0.609	45%
Tax credits (negative income tax)		-2.7	-0.667	25%		-2.743	-0.692	25%
National insurance contributions		110.0	26.834	24%		107.690	27.227	25%
Value added tax		110.7	26.964	24%		104.718	24.945	24%
Corporation tax	}	41.4	8.648	21%		41.474	7.556	18%
- Onshore	}	38.9	8.648	22%		37.918	7.556	20%
- Offshore	}	2.5	0.000	0%		3.556	0.000	0%
Corporation tax credits	}	-0.9
Petroleum revenue tax		1.2	0.229	19%		1.118	0.213	19%
Fuel duties		26.8	6.851	26%		26.881	6.844	25%
Capital gains tax		5.4	0.013	0%		3.908	0.008	0%
Inheritance tax		3.9	0.950	24%		3.423	0.911	27%
Stamp duty land tax		12.7	2.599	20%		9.273	1.866	20%
Stamp taxes on shares		3.1	0.815	26%		3.108	0.770	25%
Tobacco duties		9.9	2.555	26%		9.531	2.487	26%
Spirits duties		3.0	0.668	22%		3.056	0.704	23%
Wine duties		3.9	0.928	24%		3.713	0.886	24%
Beer duties	}	3.5	0.890	28%		3.346	0.860	26%
Cider duties	}		0.089			0.340	0.090	27%
Air passenger duty		3.2	0.754	24%		3.013	0.687	23%
Insurance premium tax		3.2	0.725	23%		3.014	0.725	24%
Climate change levy		2.0	0.318	16%		1.068	0.175	16%
Bank levy		2.7	0.000	0%		0.000	0.000	0%
Environmental levies	}	4.9		8%
Landfill Tax	}		0.253			1.189	0.264	22%
Aggregates levy	}		0.072			0.285	0.061	21%
Swiss capital tax		0.0	0.060			0.466	0.000	0%
Other taxes	}	6.9		10%
Other HMRC taxes	}	6.7
Enveloped dwellings	}		0.097			0.100	0.000	0%
Betting and Gaming	}		0.547			2.098	0.485	23%
Customs duties	}		0.686			2.901	0.654	23%
Total HMRC receipts		528.0	117.782			489.870	114.678
Vehicle excise duties		5.9
Licence fee receipts		3.2
EU ETS auction receipts		0.3
Business rates		26.9
Council tax		27.6
VAT refunds		14.1
Total National Accounts taxes		606.0
Less own resources contribution to EU		-5.1
Interest and dividends exc. APF		7.7
Gross operating surplus		28.9
Other receipts		-1.0
Total Current receipts exc. APF		636.5
APF dividend receipts		11.6
Total Income		648.1

Well a positive is that compared to last year the HMRC receipts have increased in the first quarter of the year by £3.104bn (2.7%).  However this slightly pales into insignificance when you compare the total amount expected to be collected of £528bn compared with £489bn from the previous, which represents a 7.8% increase of £39bn.  Some of the large increases for 2014 / 2015 from the previous year are stamp duty (37%), capital gains tax (38%), climate change levy (87%), and, inheritance tax (14%). 

Looking at the overall receipts they do seem to be broadly on track for this stage of the financial year, but unfortunately there is still one overriding problem, which is we are not raising enough to finance the expenditure.  I know the next statement will be an unpopular one but we need to increase the taxes to at least balance the budget, and, at the moment this equates to the deficit of £84bn.  I could have advocated the other side of the coin stating we need to cut expenditure, but the fact of the matter, everyone knows this is a lot harder to do.  If it was so easy the current Government would have done it.  Granted expenditure should be scrutinised, and, this will obviously help towards balancing the budget.

One obvious area for a quick change is V.A.T.  If this was increased to 25%, given current spending levels it would raise an additional £28bn.  I know the detractors would say that increasing it would dampen the demand for goods and services, which in turn would lead to the revenue raised decreasing, but at the end of the day we need the income, and, after all at the moment UK GDP is increasing, so if people are feeling better off, what better time is there to increase the taxes!

Another area that always surprises me is Corporation tax.  I somehow thought that this would contribute more than the forecast £41.4bn.  I need to try and do an analysis of this to understand how it is operating in practice.

In conclusion I’m sorry to say we need to stop borrowing quickly.  The sooner this ceases, we will then be able to use the amount saved in debt interest to bring down any taxation rates we have raised to more normal levels.

As always the above is meant as a guide, and, you should check any facts and figures for yourself.