Borrowing £5bn less than expected

The Government modestly undershot its expectations for public borrowing in the last financial year by nearly £5 billion, official figures revealed today.

Public sector net borrowing, excluding financial interventions such as bank bailouts, was £18.6 billion in March, the Office for National Statistics (ONS) said, bringing the total for the financial year 2010/11 to £141.1 billion.

The total for the fiscal year was less than the £146 billion forecast by the tax and spending watchdog, the Office for Budget Responsibility, which is used by the Treasury to set its fiscal policy.

The March borrowing figure was in line with City expectations.

Chancellor George Osborne is rolling out deficit-busting austerity measures, which include £81 billion of spending cuts and January's VAT hike from 17.5% to 20%.

Economists have warned that the impact of the fiscal squeeze will start to kick in this month so the rate at which public finances improve over the coming months will be critical.

The OBR forecast was revised down from £148.5 billion when the Chancellor delivered his annual Budget last month.

Earlier in the year, economists had been earmarking a potential £10 billion windfall for Mr Osborne but he was dealt a pre-Budget blow when borrowing came in at double forecasts in February.

However, the total borrowing for the year to date is £15.4 billion lower than the previous financial year, when net borrowing excluding financial interventions was £156.5 billion.

A spokesman for the Treasury said this week's credit rating downgrade to the US Government's debt outlook by agency Standard & Poor's showed concerns persist over budget deficits.

The Government needs to stick to its plan "to pay off the nation's credit card over the rest of this Parliament", the spokesman added.

While the forecast-beating figures will be welcomed by the Treasury, Britain's borrowing is still higher than that of Greece or Portugal, both of which were forced to turn to the EU for a multi-billion pound bailout.

Total tax receipts shot up by 13.1% in February to £34 billion, the ONS said, helped by the overall improved economic performance through the past year and the VAT hike.

Meanwhile, Government spending increased by 7.4% to £60.6 billion. Within this figure, interest paid on borrowing increased by 24% to £9.1 billion.

The rise in Government spending should be limited by the falling number of unemployment claims, which have dropped from the October 2009 12-year-high of 1.6 million.

James Knightley, economist at ING Bank, said today's data was "encouraging".

He said: "If the UK economy can keep growing and fiscal austerity continues at its planned pace then there is a very good chance that the Government can achieve its aim of a zero structural deficit within the current Parliament."