The Standard 22 June 2014

Business
The Standard June 22 to 28 2014 19
UK public sector
borrowing rises
London — Britain’s public
finances showed little
or no fall in underlying
borrowing two
months into the fiscal
year, suggesting the government
will have to increase the pace of
deficit reduction to meet its latest
borrowing targets.
Official data showed headline
measures of borrowing were
sharply higher than a year ago
— largely due to one-off effects
— and only weak growth in tax
receipts despite a stronger economy.
Britain’s Conservative-led coalition
government made reducing
the deficit a key economic
goal when it came to power in
2010, and will be keen to ensure
that there is no further slippage
in its targets before next May’s
election.
Public sector borrowing, excluding
some costs related to
bailing out banks, rose sharply
to 13,3 billion pounds (US$22,75
billion) in May, the Office for National
Statistics said.
This is up from 8,7 billion
pounds in May 2013 and well
above analyst forecasts of a deficit
of 9,35 billion pounds. Most
of the difference reflects the fact
that transfer payments from the
Bank of England which were
Bank of England
credited in May last year will
only apply in July in the current
financial year.
So far business surveys and
data point to robust economic
growth having carried through
into the current quarter, which
in theory ought to bode well
for tax revenues in the coming
months.
But there is little sign of this
to date and overall receipts were
just 0,5% higher in cash terms in
the first two months of the tax
year than a year ago.
“May’s public borrowing figures
contain tentative signs that
the coalition may be beginning
to struggle to bring down the deficit
in line with the fiscal plans,”
said Samuel Tombs, senior UK
economist at Capital Economics.
“While the economic recovery
may now be fairly strong, it still
appears to be struggling to have
much of an impact on the borrowing
numbers,” he added.
British government bond prices
fell slightly after the data and
their yield premium over German
debt hit its highest in more
than 16 years.
But Britain’s finance ministry
said in a statement that the figures
were still consistent with its
goal of reducing borrowing by
around 11% this year to 95,5 billion
pounds or 5,5% of economic
output.
However, the latest figures suggest
this may be a challenge, even
taking into account some one-off
effects.
Stripping out the effect of cash
transfers from the Bank of England,
the 2014/15 deficit to date
was 24,2 billion pounds, 8,7% higher
than at the same point a year
ago.
This reflects a weak outturn in
April — when payroll tax revenues
were lower than a year earlier
— as well as May 2013’s receipt
of payments from a Swiss tax deal.
Stripping out the Swiss tax effect,
the ONS said that May borrowing
was 1,5% lower than a year before.
Public sector net debt rose to
1,285 trillion pounds in May, meaning
that as a share of gross domestic
product, it matched March’s
all-time high of 76,1%.
In a separate article released
after the data, the ONS also gave
more details of wide-ranging
changes to public finances calculations
due to take effect later this
year, in part due to changed European
Union guidance.
The underlying measure of
public borrowing used in government
fiscal forecasts will change.
Whereas it showed a cash deficit
of 107 billion pounds in 2013/14 —
equivalent to 6,6% of GDP — under
the new definition it would be
just 98,7 billion pounds.
The downward effect on the deficit
as a share of GDP is likely to
be even larger, as other changes
mean the level of GDP for 2013/14
is likely to be revised up by around
5%, although the ONS has not finished
its calculations.
—Reuters
EU closes tax loophole
for multinational firms
Luxembourg — The European
Union has moved to close a
loophole that has allowed multinational
companies to reduce their
tax bills by exploiting differences in
national tax rules, ending months of
negotiations and potentially boosting
EU states’ tax revenues.
Corporate tax avoidance has become
a hot issue in industrialised nations.
Campaigners have drawn support
from public anger at companies avoiding
taxes at a time of austerity.
“The aim is to close a loophole that
currently allows corporate groups to
exploit mismatches between national
tax rules so as to avoid paying taxes on
some types of profits distributed within
the group,” finance ministers said
in a statement.
The change in the so-called parentsubsidiary
directive addresses “hybrid
loan arrangements”, a combination
of equity and debt often used as a
tax-planning tool.
Some member states classify profits
from such tools as a tax-deductible
debt; others do not. That has prompted
some multinational companies to open
subsidiaries in other member states so
they pay little or no tax.
“Using an [EU] directive that was
based on common sense — avoid double-taxation
— a few cunning devils
had managed to pay no tax at all,”
French Finance minister Michel Sapin
said, welcoming the move. “That
will mean a bit more money in state
coffers, which as you know we're quite
keen on.”
All EU tax law requires unanimity
among member states, and getting
all states on board has been an uphill
struggle. Europe has been torn between
the demands of small countries
fiercely resisting change to low-tax regimes
that attract foreign investment,
and others wary of driving away big
employers.
—Reuters
Ghana quietly reintroduces
fuel subsidies: Oil importers
Accra — Ghana’s government
quietly reintroduced fuel subsidies
in April and has spent
around US$85 million since then
in extra payments, the head of the
Chamber of Bulk Oil Distributors
has said.
The subsidies were scrapped early
last year in a bid to reduce the budget
deficit and restore macro-economic
stability in Ghana.
The reintroduction has not been
publicly announced and senior government
officials were unavailable
for comment.
The chamber’s chief executive, Senyo
Hosi, also said Ghana’s reserves
of oil for domestic consumption normally
stand at around four weeks
but have fallen to just one week because
banks are refusing to extend
credit to importers due to outstanding
government payments.
—Reuters