UK PUBLIC borrowing rose less than expected in July, boosted by a surge in corporation tax receipts, raising hopes that Britain’s finances can be brought under control as the government prepares its spending review.

Net borrowing was £3.8 billion in July, less than the £5.25 billion forecast by economists and well down on the £6.1 billion of borrowing in the same month last year. In the financial year to date, net borrowing is £44.9 billion compared with £47.5 billion last year.

Although it is only four months into the 2010-11 tax year, if borrowing continues at its current pace, the deficit appears on course to undershoot the budget forecast of £149 billion.

July is one of the key months in the year for corporation tax receipts, and these jumped 38 per cent compared with a year ago to £8.5 billion in a sign that businesses’ profits are improving.

Corporation tax receipts are up 25 per cent in the year so far while income and capital gains taxes were up 5 per cent in July. VAT receipts have been higher all year thanks to the rate hike in January.

“July is an important month for tax receipts because of quarterly payments of corporation tax, and today’s figures show receipts strengthening in line with the Office for Budget Responsibility’s budget forecast,” a treasury spokesman said.

“However, tax receipts remain below their pre-recession peak and the UK is still forecast to have the highest deficit in the Group of 20 this year, which is why the budget announced measures to bring borrowing down.”

The next key fiscal event will be the comprehensive spending review in October, when the government will have to outline in detail which departments will have to bear the brunt of the cuts in public spending. – Copyright The Financial Times Limited 2010