Slump in tax receipts proof of deep crisis
THE quality of Britain’s official statistics isn’t as bad as it used to be. But I wouldn’t be surprised if the 0.4 per cent decline in GDP reported on Friday is eventually revised upwards – time and again, the Office for National Statistics has rewritten economic history, sometimes radically, with the benefit of hindsight. There have been instances during the past 20 years when the Bank of England has been misled into taking incorrect action by statistics that turned out to be completely erroneous; I hope that they have learnt their lesson and don’t panic too much.
That said, there can be no doubting that the UK economy is continuing to under-perform. This can best be seen by taking a look at the latest figures for government revenues and the budget deficit: both give some indication of the state of the overall economy, as weaker output means lower tax receipts. So far, we have the April-September data and they make grim reading. Central government revenues have collapsed 10.3 per cent year on year during that period, and are down 8.6 per cent excluding Vat, which has been temporarily cut by 2.5 points to 15 per cent. What makes these figures even more depressing is that they are massively worse than forecast in the Budget: for the whole of 2009-210, Alistair Darling predicted that revenues will fall 7.8 per cent (5.7 per cent excluding VAT). Indirect taxes, corporation tax and social security are all especially weak, as an analysis from Citigroup points out.
Tax receipts don’t move in perfect lock-step with economic growth, of course: during the bubble, they surged ahead at a faster rate, buoyed by excessively high asset prices and artificially elevated financial services profits; now they are falling back at a faster rate than the overall economy.
Nevertheless, the fact that receipts are still plummeting suggests that the economy probably did contract in the third quarter. There has been some good news for the public finances but only from asset and commodity prices: UK equities are up 30 per cent or so since the Budget, adding £3bn per year to receipts from stamp duty, corporation tax, capital gains tax and inheritance tax. Oil is up about $30 since the Budget, adding another £3bn or so to annual revenues. But the underlying private sector economy remains extremely weak.
The latest figures contain another gem: public spending is not growing as fast as the government hoped it would. We have heard ad nauseam from Prime Minister Gordon Brown how his public spending “stimulus” has supposedly kept the economy going; the truth, however, is that central government current spending was up just 4.8 per cent in April-Sep, much less than the 7.4 per cent forecast in the Budget. Even with buoyant capital spending (up 67 per cent so far, compared with 23 per cent in the Budget), total central government spending is up just 6.9 per cent, against a planned 8.4 per cent.
In other words, the government is not spending that much faster this year than in previous years. There is no deliberate stimulus, merely an out of control and destructive budget deficit caused by a collapse in tax receipts. And with the deficit set to smash the £175bn planned by Brown this year, and the government’s debt set reach around 100 per cent of GDP in six years’ time, we are truly in trouble. Last Friday’s figures may have exaggerated the scale of the recession – but there can be no denying the true scale of the crisis facing Britain.
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