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Tax receipts have 'fallen off a cliff' amid lockdown

Tax receipts have 'fallen off a cliff' amid lockdown

Tax receipts took a £26bn hit in April as the UK’s economy felt the force of the coronavirus crisis.

Figures from HM Revenue and Customs, published last week (May 22), showed the taxman received £35bn in April — £26bn, or 42 per cent, less than the £61bn received in April last year.

HMRC said the month’s figures had been “significantly affected” by the Covid-19 pandemic, which “as expected” had resulted in lower receipts collected across a number of taxes.

The government saw a 21 per cent dip in the money extracted from income tax, down to £14bn, while the apprenticeship levy and NICs payments were down 22 per cent and 18 per cent respectively.

A gulf in consumer spending as shops, bars and restaurants shut during lockdown meant VAT receipts fell 107 per cent while spirits, beer, wines and cider duties also plummeted.

The amount consumers paid in inheritance tax dropped by a third to £307m while stamp duty receipts fell by almost half (43 per cent).

However other taxes linked to financial services, such as shares and capital gains tax, bucked the downward trend and rose 59 and 51 per cent respectively.

Laura Suter, personal finance analyst at investment platform AJ Bell, said: “The first sign of the lockdown crunch on the government’s tax take can be seen in its release of how much tax the nation paid in April – which has fallen off a cliff compared to last year.

“The government faces a huge challenge ahead to deal with these falling tax receipts while also having to pay for its numerous support schemes during the current crisis.”

The backdrop

The sharp drop in money heading to the government via tax comes as the government is set to be out of pocket to the tune of £300bn following the coronavirus crisis — the largest single-year deficit since the Second World War.

Just last week chancellor Rishi Sunak warned the UK faced a “severe recession, the likes of which we have not seen” as a result of the lockdown measures set up to curb the coronavirus.

The Office of Budget Responsibility has previously warned the UK economy was set to face a record 35 per cent drop in output if the lockdown lasted three months, while warnings have also been sounded by the Bank of England, which last month said the UK was facing “severe economic and financial disruption” caused by Covid-19.

The economy shrank at the fastest rate since records began in March, with gross domestic product falling 5.8 per cent in the month. In the whole of Q1 it shrank 2 per cent. Over the course of 2020, the bank expects the British economy to shrink by 14 per cent.

imogen.tew@ft.com

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