Blow to George Osborne as borrowing rises
Friday 20 July 2012
Chancellor George Osborne's deficit-busting plans are struggling to keep up with full-year targets as official figures published today revealed another rise in Government borrowing.
Public sector net borrowing, excluding financial interventions, such as bank bailouts, was £14.4 billion in June, up from a revised £13.9 billion the previous year, the Office for National Statistics (ONS) said.
While tax revenues increased in the month by 3.6% to £40.9 billion, total Government spending only dipped by less than 1% to £52.4 billion.
The weak figures come after the International Monetary Fund (IMF) said the Chancellor should be braced to slow the pace of his tough austerity measures if the economy fails to come to life.
The Chancellor wants to trim borrowing in 2012/2013 to £120 billion, excluding a one-off boost from the transfer of the Royal Mail pension fund into Treasury ownership.
This compares with borrowing of £125.7 billion in the last financial year, which was revised down to below the Office for Budget Responsibility's (OBR) forecast of £126 billion.
Mr Osborne is in the process of rolling out billions of pounds of spending cuts and hundreds of thousands of public sector job losses in a bid to slash the budget deficit.
But the economy fell back into recession in the first quarter of the year, which has significant implications for tax revenues, while high levels of unemployment are increasing the burden on the state.
This was reflected in June's public finance figures, which showed a 0.1% drop in income tax to £10.8 billion and a 3.2% rise in social benefits, including unemployment claims, to £15.4 billion.
A Treasury spokesman said: "It is too early in the financial year to draw conclusions about the year as a whole. This is volatile data and is prone to revision - borrowing for last year has been revised again and is now estimated to be below the OBR's forecast."
Net debt excluding financial interventions now stands at £1.04 trillion, compared with £944.6 billion last June.
Debt as a percentage of gross domestic product (GDP) - a broad measure for the total economy - hit 66.1% in June, up from 62.3% last year.
April's borrowing figures were flattered by a £28 billion lift from the value of assets transferred from the Royal Mail pension plan.
But excluding this one-off impact, total borrowing for the current financial year stands at £42.9 billion, compared with £38.4 billion at the same stage last year.
The IMF, led by former French finance minister Christine Lagarde, said last night that the Government should ease its fiscal tightening if the recovery continues to stall.
The organisation said Mr Osborne should consider introducing increased infrastructure spending in his next Budget to boost growth, which could be funded by further tax reforms.
The organisation significantly lowered its UK growth forecast for 2012 to 0.2% from 0.8% just three months ago, reflecting the UK's slide into double-dip recession.
Last week, the Chancellor and Bank of England Governor Sir Mervyn King launched an £80 billion lending scheme to stimulate economic growth - but ministers insisted the move was not a "Plan B".
James Knightley, economist at ING Bank, said: "It is clear that the recession is leading to a worsening of the UK's underlying fiscal position and raises more question marks over the effectiveness of the Government's austerity measures."
Vicky Redwood, chief UK economist at Capital Economics, said: "More bad news for the Government comes in the form of another poor set of UK public finance figures."
She added: "Borrowing therefore remains on course to overshoot the OBR's full-year forecast by a long way - on current trends, by about £20 billion."
Labour Treasury spokeswoman Rachel Reeves said: "After yesterday's IMF report, these figures are another damaging blow to David Cameron and George Osborne's failed economic plan.
"By choking off the recovery and pushing the economy into recession the Chancellor has ended up borrowing more - as we repeatedly warned.
"With the double-dip recession and rising long-term unemployment leading to a bigger benefits bill, the Government has now borrowed £4.5 billion more in the year so far than in the same period last year. This is a rise of 11.7%, compared to the 4.6% fall predicted at the time of the Budget. And this borrowing of £42.9 billion is the highest amount ever recorded in the first three months of any financial year.
"This all comes on top of the extra £150 billion the Government has already admitted it will have to borrow to pay for the costs of high unemployment and slow growth.
"Trying to raise taxes and cut spending too far and too fast has badly backfired and the Government's pledge to balance the books by 2015 is now in tatters.
"We need tough decisions on tax, spending and pay but to succeed in getting the deficit down we also need a plan for jobs and growth. Unless the Chancellor takes urgent action to boost the economy now he will end up borrowing billions more to pay for economic failure and cause long-term damage too."
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