The dire state of Britain’s public finances was underlined today with new figures showing tax receipts falling and public borrowing growing still further.
Statistics from the Office for National Statistics revealed that net borrowing stood at almost £18bn in May – up from just over £15bn in the same month last year. Analysts had been expecting borrowing to come in at around £14.5bn in May but the ONS said tax receipts had fallen more than 7 per cent on May 2011 while government spending had risen by 8 per cent - driven by an 11.7 per cent jump in welfare payments.
The weak figures will worry the Government and threatens to derail George Osborne’s plan to cut total borrowing to £120 billion this financial year.
The figures came as the Bank of England governor Mervyn King said the outlook for the UK economy has worsened over the past few weeks due to turmoil in the eurozone.
“In the last six weeks... I am very struck by how much has changed since we produced our May Inflation Report," Mr King told the Treasury Select Committee this morning.
“I am pessimistic [about the eurozone outlook]. I am particularly concerned because over two years now we have seen the situation in the euro area get worse and the problem being pushed down the road,” he said.
April's borrowing figures were flattered by a one-off £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 £28.4 billion.
A spokesman for the Treasury tried to play down the significance of the figures.
“It is too early in the financial year to draw conclusions about the year as a whole, especially as today's public finances data include a number of one-off factors and temporary distortions,” they said.
“The Government is committed to dealing with the deficit, which will help keep interest rates lower for longer and support millions of families and businesses across the country.”
Vicky Redwood, chief UK economist at Capital Economics, said borrowing is on course to overshoot “significantly” the official full-year forecast of £120 billion.
She said: “The main problem remains a sharp slowdown in tax receipts. And with the economy probably still in recession, receipts are likely to remain weak.
“The combination of worsening public finances and renewed recession is likely to intensify calls for the Government to change tack on its austerity programme.”
Britain's economy slipped into its second recession since the start of the financial crisis around the turn of the year and fears of a longer slump have been rising as companies hold back investment.
The Bank of England’s Monetary Policy Committee recently votes against more Quantitative easing, but most economists expect the programme to start again next month.
Labour Treasury spokeswoman Rachel Reeves said: “These figures are another nail in the coffin of David Cameron and George Osborne's failed economic plan.
“As we consistently warned, if you choke off the recovery and push the economy into recession, the Government ends up having to borrowing more, not less.
“In the year so far, the Government has actually borrowed £3.9 billion more than in the same period last year - as the recession meant tax receipts fell and spending on benefits rose.
“Unless the Chancellor finally changes course and adopts a more balanced plan, he will end up borrowing billions more to pay for economic failure and cause long-term damage to our economy too.”