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Exchequer returns May 2016 - Peter Vale commentary

Peter Vale Peter Vale

Overall, it's another strong set of figures, with figures for the year to date ahead of target, driven by particularly strong corporation tax and excise receipts.

The main focus today was on the VAT figure as VAT receipts for the year to date were lagging behind target. The VAT receipts for May show a return to positive figures, with the numbers both ahead of target and last year. 

Interestingly, VAT receipts have lagged behind the growth in other tax heads since 2012. Given the strong labour market, it is perhaps surprising that we haven't seen a corresponding surge in VAT receipts. It suggests that the effects of the recession haven't quite been forgotten and that consumers are taking a more cautious approach to the improving economic climate. 

It also suggests that a greater portion of disposable income continues to be used to either pay down historic debt or alternatively diverted to savings. Of note is that many consumers are benefiting from historically low mortgage interest rates, which frees up even greater resources for spending. A hike in ECB rates in the future would suck significant buying power out of the economy and impact on VAT receipts. 

Excise receipts for the year to date are very strong, reflecting strong car sales. Car sales continue to sit in the "outperform" category, although it will be interesting to see whether higher insurance premiums have any impact on sales in the second half of the year.

In summary, a good set of numbers.

Also see the Summer Economic Statement