The national debt rises, again

Corporation tax revenue plummets, leaving a hole in the nation's finances.

The UK treasury. Photograph: Getty Images

The UK deficit has, again, grown.

ONS statistics show that the government has accrued £3.4bn more in debt since July 2011, leading to a current deficit of £600m. This stands in contrast to last year's £2.8bn surplus.

While local government borrowing has decreased by £100m in the past year, a year-on-year drop of 0.8 per cent in receipts and a 7.3 percent increase in expenditures has increased central government borrowing by £3.5bn.

The shortfall is mainly due to a precipitous decline of 19.3 per cent (year-on-year) in corporate tax revenue that has deprived the Treasury of £1.7bn compared to last year. As reported in the Guardian, a Treasury spokesman has attributed the fall in corporate tax receipts to a cut in North Sea oil production. Contrastingly, in part due to the 2010 VAT rate increase, VAT revenue has risen by £12.4bn, or 6.3 per cent. Similarly, income tax and capital gains revenue has noted a year-on-year increase of 1.1 per cent, despite a £200m drop (0.5 per cent) since April. Compulsory social contributions, on the other hand, have grown by 4.2 per cent since last year, pointing to the paradoxical buoyancy of the labour market.

With an overall £0.4 billion decrease in revenue since last year, the Treasury warns that the number may be overstated due to yearly variations in self-assessment tax receipts and points to the possibility of inflated numbers for August.

Still, the government's finances are in dire shape. Expenditures have gone up by 5.1 per cent, or £2.4bn, in a year (this is excluding debt interest payments), with a notable increase of £900m on social benefits.

As economists have recently noted, the numbers are grim and disappointing. Some, like Jason Coniber of Cambridge Mercantile, have taken this as a final testament to Osborne's failed austerity:

Plan A now has so many holes in it, it is fast resembling a piece of Swiss cheese. Despite the government's austerity measures, it still seems powerless to reduce the deficit. Net debt continues to march upwards, and now stands at nearly two thirds of GDP. The government is borrowing more to pay the bills too - all of which makes a mockery of the chancellor's centrepiece economic policy. While Plan A is a fine idea in theory, the chancellor's obsessive focus on deficit reduction isn't working; and to make matters worse, it is distracting him from the underperforming economy as a whole. When austerity is merely an article of blind faith and not an economic instrument, something is badly wrong

Others continue to support government cuts as a means to financial credibility.

However, almost unanimously, economists agree that the government must back proactive growth reforms to prevent further contraction. The debate stands as to how this is to be done. Phillip Shaw of Investec suggests monetary policy (i.e. quantitative easing) as the less risky (but most likely fallible) way to spur growth, while David Kern of the British Chambers of Commerce suggests "more deregulation, increased infrastructure spending, and the creation of a state-backed business bank".