The dire state of the UK's finances was further exposed yesterday with "shocking" data which showed that government borrowing soared to a record level in August.
The Office of National Statistics said that public sector net borrowing last month ballooned by 63 per cent to £16.1bn in August, in the same week that the Prime Minister finally admitted that "cuts" in government spending are inevitable.
While borrowing was marginally less than economists had feared, the rise meant that public sector net borrowing more than doubled to £65.3bn over the five months to the end of August.
Philip Hammond, the shadow Chief Secretary to the Treasury, said: "We used to worry about borrowing £16bn in an entire year. Now Labour have done it in just one month with a new August borrowing record."
The current rate of net borrowing means that the Chancellor, Alistair Darling, would exceed his £175bn forecast for the full-year by about £50bn, Capital Economics said. But total government expenditure rose by only 2.9 per cent to £45.6bn in August, which means that the deficit is being mainly driven by tumbling total receipts – largely income taxes – down by 9 per cent to £34.1bn.
In August, income tax receipts plummeted by 13 per cent to £10.2bn, from £11.7bn the year before. Slow economic activity was also responsible for corporation taxes nearly halving to £481m last month.
Howard Archer, chief European economist at IHS Global Insight, said: "Once again in August, tax revenues were hammered by extended extremely weak economic activity, deteriorating corporate profitability, high and rising unemployment, markedly reduced bonus payments, last December's VAT cut, and muted housing market activity."
At the end of August, government net debt was £804.8bn, equal to 57.5 per cent of gross domestic product and sharply up from last year's £632.8bn.Reuse content