Lockdown measures cause tax receipts to slump

The government saw tax receipts tumble in April, research showed on Friday, as the lockdown brought large parts of the economy to a halt.

Investment platform AJ Bell, using data from HM Revenue and Customs, found that the government received 42% less tax in April compared to the same month a year earlier.

Of that, total income tax was down 21% and National Insurance contributions were off 18%, as companies cut jobs or furloughed staff.

Value added tax receipts declined 107%. Chancellor Rishi Sunak announced in March that companies could defer VAT payments to help with cashflow during the crisis.

Beer and wine duties were also down, at 69% and 19% respectively, as the lockdown closed pubs and restaurants. Similarly, air passenger duty slumped 90% as planes were grounded and the travel industry halted. The closure of the property market saw stamp duty payments decline 43%.

Laura Suter, personal finance analyst at the 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. So far, around £5.2bn has been spent on the coronavirus job retention scheme, and it’s inevitable the public will see tax rises to help meet the shortfall."

Earlier on Friday, figures from the Office for National Statistics showed that public borrowing had soared to a record £62.1bn in April, as the government financed a raft of measures brought in to support the economy during the outbreak.

The ONS also found that total tax receipts were down 26.5% in April, with VAT off 43.6%. However, the ONS calculates borrowing data on an accrued basis, meaning the drop in VAT reflected the body’s assumptions about the collapse in GDP in the second quarter, and not the impact of the VAT holiday.