Britain slumps another £10bn into the red

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Indy Politics

Britain slumped into the red by another £10.3 billion last month despite a leap in business tax and VAT revenues, figures revealed today.

Public sector net borrowing in October set a record high for the month and marked an increase on the £10.1 billion seen a year earlier, according to the Office for National Statistics (ONS).

The rise came in spite of signs that the recovery was boosting government tax take, with corporation tax revenues up 29% and VAT also higher as shoppers rushed to beat January's VAT hike to 20%.

Some economists had expected borrowing to fall year-on-year, with October traditionally seen as a strong month for taxes.

The figure, which excludes the impact of financial intervention by the Government, has taken borrowing in the financial year to date to £81.6 billion.

But the ONS revealed hefty downward revisions to borrowing in August and September, down to £14.1 billion and £15 billion respectively, which gives hope that the Government remains on track to come within the £149 billion forecast by the Office for Budget Responsibility for 2010-11.

The further borrowing in October saw Britain's budget deficit widen by another £7.1 billion last month.

Net debt is now £845.8 billion, which represents 57.1% of gross domestic product (GDP) - also a record for October.

Today's figures are likely to reinforce the Government's argument for slashing public sector spending, with the full scale of cuts announced last month.

While tax revenues are increasing and falling unemployment is helping reduce spending on jobless benefits, economists said the Government is battling against ever-increasing interest payments on its mammoth debt levels.

Figures for last month, which include financial intervention - which reduces overall borrowing due to profit contributions from the part-nationalised banks - was £9.8 billion in October, up on the £9.4 billion seen a year ago.

Experts said that while the amount borrowed in October was slightly more than expected, the significant downward revisions for recent months meant the year-to-date level was lower than forecast.

Howard Archer, chief economist at IHS Global Insight, estimated financial year borrowing would reach £145 billion - below Chancellor George Osborne's target.

The recovery and deficit-busting efforts will help bring down borrowing further, although interest payments pose a "serious problem", he warned.

Mr Archer said: "The breakdown of central government expenditure shows interest payments were up to £3.86 billion in October from £3.35 billion a year earlier."

A Treasury spokesman said UK finances were "out of the financial danger zone", but he added that today's borrowing figures "make clear exactly why we need to tackle the unprecedented borrowing the Government faces".