LONDON (MNI) – The Office for Budget Responsibility downplayed the
weakness of corporate tax receipts growth in July, saying the weakness
was largely due to two sectors, oil and financial services.

In its comments on the July public finance data, the OBR said it
expected receipts growth would be stronger in the remainder of the
2011-12 fiscal year than it has been in the first four months of the
year.

The OBR noted July corporation tax receipts were up just 1% on a
year ago while in its March Economic and Fiscal Outlook the OBR had
forecast 14.5% growth for 2011-12.

“It is worth emphasising that while corporation tax receipts were
weaker than the full year forecast in the March EFO, the weakness is
largely explained by the oil and financial sectors, rather than the
wider economy. Receipts from industrial and commercial companies were
broadly in line with their full year forecast in the March EFO,” the OBR
said.

Receipts from oil and gas firms were dampened by a payment linked
to the previous years’ liabilities, while the financial sector’s woes,
due to market turbulence and banks’ payment protection insurance
payouts, have been well documented.

The July data, at first glance, suggest the reduction in public
sector net borrowing could struggle to match the shrinkage predicted by
the OBR for 2011-12.

In the four months through July, the first four of the fiscal year,
the OBR noted public sector net borrowing was stg2.9 billion lower than
in the same period a year ago, with the decline proportionately below
the OBR’s forecast for the whole fiscal year.

Receipts growth in the first four months of the fiscal year came in
at 4.3 %, compared to the OBR’s full year forecast of 7.2%.

“Receipts growth should be stronger over the remainder of 2011-12,”
the OBR said.

It cited a number of factors for the expected rise in receipts,
including the delayed impact of the 50% personal tax rate and stronger
growth in offshore corporate tax receipts.

It warned, however, that if the weakness in financial and oil
sector receipts were to continue “growth in corporation tax receipts
could be less than the 14.5% growth assumed in the March EFO forecast
for the whole financial year.”

— London newsroom: 00 44 20 7862 7491; drobinson@marketnews.com
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