Taxes help boost public finances

The public purse headed into the black last month despite the poor performance of the economy.

The VAT rate of 20 per cent, good corporation tax receipts and the tax levy on banks saw Government income hit a surplus of £2 billion in July. A small rise in National Insurance contributions also helped.

In the first four months of the current financial year, net government borrowing was a little over £32 billion. This represents a £3 billion decline in borrowing compared with a year ago.

Ross Walker of Royal Bank of Scotland added: "At face value it's a better than expected outturn. It's quite an important figures as July is a key month for corporation tax receipts. It's the first big inflow for 2011. The issue is that with expectations for growth deteriorating sharply, the risk of a hit to tax receipts have increased. But at least as things deteriorate, we're starting from a strong point."

There wasn't, however, unanimity amongst analysts about the ability of the Government to meet its budget deficit reduction targets.

Samuel Tombs of Capital Economics said: "July's public finance figures suggest that the trend in borrowing has improved a bit, but not enough to leave the government on track to hit the fiscal forecasts for the year as a whole."