Shine comes off Government's bumper month for tax receipts

The shine was taken off the Government's bumper month for tax receipts after it notched up a lower-than-expected surplus in July.

The Office for National Statistics said the surplus - which does not include public sector banks - hit £1 billion last month, down £200 million compared with July last year.

Economists were pencilling in a figure of £1.4 billion.

The ONS said public sector net debt excluding banks climbed by £35.3 billion to £1,604.2 billion over the period, the equivalent to 82.9% of gross domestic product (GDP).

Despite July's lower-than-expected surplus, Government borrowing in the current financial year to date made for brighter reading, as it fell £3 billion to £23.7 billion compared with April to July last year.

David Gauke, chief secretary to the Treasury, said: "With the public finances in surplus in July, our economy starts from a position of strength to face any economic turbulence following the vote to leave the EU.

"As we keep working to cut the deficit, we are well placed to handle any challenges and seize the opportunities as our economy adjusts. We are determined to build on our economic strengths to ensure Britain is a country that works for everyone."

The Treasury's coffers were boosted by a 3.4% rise in tax receipts to £61.8 billion in July, compared with the same month last year.

It was driven in part by a 6.9% rise in National Insurance contributions to £9.7 billion and a 8.4% rise in Corporation Tax to £7.5 billion.

VAT receipts also picked up 1.3% over the period to £11 billion, while income tax lifted 1.9% to £18.9 billion.

The ONS said taxes on interest and dividend payments surged by 79.9% to £1.8 billion.

However, the jump in tax receipts was offset by a 1.4% rise in government expenditure to £58.4 billion over the period.

Chancellor Philip Hammond has indicated that the Government may take advantage of the cheap cost of borrowing to push fresh investment into the UK in the hope of bolstering productivity.

Prime Minister Theresa May has also scrapped the Government's previous target of achieving a budget surplus by 2020.

Samuel Tombs, chief UK economist of Pantheon Macroeconomics, said July's "relatively small surplus" means Mr Hammond will only be able to muster a small package of measures to boost the economy in the Autumn Statement.

"The public finances nearly always swing into surplus in July, as large firms make corporation tax payments on their expected profits for the year.

"Corporation tax receipts actually performed well, rising 8.4% year-over-year in July, much better than the OBR's (Office for Budget Responsibility) expectation for a 0.5% full-year decline.

"But this surge was fully offset by weakness in other receipts; taxes on production, for instance, fell 0.8% year-over-year."