UK public finances disappoint

Gordon Brown ponders the UK's dwindling finances

Lower than expected corporate tax revenues have put the UK's public finances under strain, new figures have shown.

The Office for National Statistics said on Wednesday that the government's coffers were £2.5bn in surplus last month, down by more than half on the same period last year, and well short of the £4.3bn predicted by analysts.

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Over the six months to late October, the government faced a net cash shortfall of £5.2bn, down from a surplus of £5.7bn last year.

The figures show that Chancellor Gordon Brown, who is due to set out his future spending plans in next week's pre-Budget report, has less room for manoeuvre than previously thought.

Tax squeeze

The deterioration in the UK's public finances is partly because of a change in the corporation tax regime to a quarterly rather than an annual payment system.

But the decline also reflects a reduction in the amount of tax paid by big companies, in line with lower corporate profits.

Corporate tax receipts for October came in at £7.1bn, 28% down on the same period last year, the figures showed.

Spending boost

According to ONS, total tax revenues since the beginning of the fiscal year in April were up by just 0.1% compared with the year before, while total spending by government departments rose by 7.4%.

Mr Brown is widely expected to revise upwards his estimate of this and next year's public deficit when he unveils the pre-Budget report.

However, most analysts expect him to stick by his commitment to run deficits over the economic cycle only in order to finance investment spending.