Government borrowing soared to a September record of £16.2bn last month, it emerged yesterday as the Chancellor, George Osborne, stood up in the Commons to detail £81bn of spending cuts billed as bringing "sanity" back to the public finances.
Last month's total borrowing was £700m higher than in September 2009 and took Britain's total net debt, excluding bank rescues, to £842.9bn, or 57.2 per cent of gross domestic product, said the Office for National Statistics (ONS).
If the cost of bank rescues is included, it pushes the numbers for the year to date even higher, with total net debt of £952bn, or 64.6 per cent of GDP. The September figure of £15.6bn was, however, slightly lower – reflecting the improved performances of the part-nationalised banks. During the first six months of the current financial year, overall borrowing, excluding bank rescues, stood at £73.5bn – slightly lower than the £77.4bn borrowed during the same period in 2009.
But non-capital expenditure by central government shot up by 10.2 per cent in September – the highest annual jump since March – driven by rises in the health and defence budgets, the ONS said. Benefits payments were also up by 5.6 per cent and general spending rose by 8 per cent. Taken together, the increase in government outgoings far outstripped the £2.7bn – or 7.6 per cent – year-on-year rise in tax receipts.
The Government is expected to point to the widening gap between its income and expenditure as evidence of the need for the savage spending cuts outlined yesterday by Mr Osborne in his Comprehensive Spending Review. The Coalition's critics have argued that a sharp contraction in public spending could push the economy back into recession, but economists were divided yesterday about the implications of the ONS report.
The Treasury's borrowing target is £149bn this year – £6bn less than in 2009/10, according to the Office for Budget Responsibility (OBR), which was set up by in May to provide an independent assessment of the public finances. Net debt is to come down to 61.9 per cent of GDP by the end of financial 2010/11, the OBR says.
Bearish commentators yesterday argued that last month's borrowing increase put the Chancellor on course to miss his £149bn borrowing target. Samuel Tombs, at Capital Economics, said: "September's overshoot casts further doubt on the ability of the Government to meet the June Budget forecasts, and casts a shadow over the Spending Review." But not all are so gloomy: overall borrowing is down and rising tax receipts point to improvements in the overall economy, with tax revenues this year up by 9.3 per cent, above the 6.3 per cent full-year target.
If the recovery holds its current course, full-year borrowing will come in at £148bn, a shade below the Chancellor's target, according to Howard Archer, the chief economist at IHS Global Insight.
"George Osborne may still be able to meet his target in 2010-11, although much will depend on how well economic growth holds up over the rest of the financial year," he said.