Government finances 'worse than expected'

The government went much further into the red than had been expected over July.

According to new official figures, deficits rose by £8 billion over the month - where analysts had previously expected an increase of £500 million.

July is usually a surplus month for the public balance sheet, with corporation tax returns swelling revenues.

However, profits among firms have been hit by the recession and credit crunch - with a corresponding decline in the tax take.

Overall revenues were just over £6 billion for July, down on the £9.9 billion raised over July 2008.

The government has also limited its tax take through its temporary reduction in VAT, which comes to an end in 2010.

Commenting on the data, Gemma Tetlow, a senior research economist at the Institute of Fiscal Studies, said: ’[Tax] receipts overall are shrinking more quickly so far this year than the Treasury predicted they would do in the Budget over the year as a whole.

’Borrowing since April has been three times higher than over the same period last year, whereas the Treasury expects borrowing over the whole of this financial year to be twice last years level.’

Ms Tetlow added that she expected the deficits to shrink over the months to come, due to the general improvement in economic conditions.ADNFCR-2318-ID-19324640-ADNFCR