Government borrowing remains unchanged
Friday 21 September 2012
Government borrowing remained unchanged last month, official figures revealed today, amid growing expectations that the Chancellor will abandon his deadline to start lowering UK debt within three years.
Public sector net borrowing, excluding financial interventions such as bank bailouts, was £14.4 billion in August, equal to borrowing in the same month last year.
The stubborn figures will pile pressure on George Osborne, who is widely expected to announce in his autumn statement in December that the Government will be unable to start bringing down debt as a percentage of GDP in 2015/16.
The likelihood of the Chancellor dropping this target was heightened last night after Bank of England Governor Sir Mervyn King effectively endorsed such a move - on condition the global economy was growing slowly.
Public sector net borrowing in the financial year to date was £59 billion, the ONS said, excluding a one-off £28 billion boost from the transfer of the Royal Mail pension fund into Treasury ownership.
The Chancellor wants to record borrowing for the full year 2012/2013 to £120 billion, excluding the Royal Mail pension effect, compared with a downwardly revised £119.3 billion in the previous year.
But Mr Osborne's chances of hitting this target are looking increasingly slim, according to most economists, as the ongoing recession impacts on tax receipts and Government spending.
If the Chancellor sticks to the debt target, he will be faced with announcing potentially large tax rises and further spending cuts in his autumn statement.
But Sir Mervyn, when asked last night about the supplementary rule on debt, indicated that he would not complain if the target was missed.
He said: "If it's because the world economy has grown slowly, so we have in turn grown slowly, then that would be acceptable. It would not be acceptable if we have no real excuse."
Within the August figures, the picture was much the same as previous months, with Government spending outstripping tax receipts as income tax falls and spending on social benefits rises.
Total tax receipts were 1.8% higher at £41.4 billion while total expenditure increased by 2.5% to £52.5 billion.
Income tax dropped 1% in August to £11.5 billion, while social benefits were 4.9% higher at £16.1 billion.
Public sector debt was £1 trillion at the end of August, equal to 66.1% of GDP, compared with £955 billion, or 62.7% of GDP in August last year.
A Treasury spokesman said: "Borrowing figures for August this year are better than the markets expected and, for the first month this financial year, in line with those of last year.
"This underlines why, at such an uncertain time, we should not second guess what the Office for Budget Responsibility will forecast later in the year, by which time it will have further months' data to draw on."
Exchequer Secretary to the Treasury David Gauke said: "Today's figures show the Government borrowed almost £7 billion less last year than previously estimated by the independent Office for National Statistics, down nearly £40 billion from the peak of two years ago. This is further evidence that we are dealing with our debts and getting the deficit down."
And a Treasury spokesman added: "Borrowing figures for August this year are better than the markets expected and, for the first month this financial year, in line with those of last year.
"This underlines why, at such an uncertain time, we should not second-guess what the Office for Budget Responsibility will forecast later in the year, by which time it will have further months' data to draw on."
But Labour Treasury spokesman Chris Leslie said: "These figures show that the deficit is rising because the Government's economic plan is failing.
"We have the highest ever borrowing for any August and borrowing is up by 22% so far this year compared to the same period last year.
"With the longest double-dip recession since the Second World War, the Government has borrowed over £10 billion more in the first five months of this year than in the same period in 2011.
"And this is billions more in borrowing not to invest in the jobs of the future but simply to pay for the mounting costs of economic failure as the double-dip recession leads to higher benefit bills and lower tax revenues.
"By choking off the recovery with tax rises and spending cuts which go too far and too fast, George Osborne's pledge to balance the books by 2015 is already in tatters and there are now serious questions about whether he can meet his debt target. But without urgent action to kick-start our economy the Chancellor will end up borrowing billions more to pay for economic failure and cause yet more long-term damage to our economy."
David Kern, chief economist at the British Chambers of Commerce (BCC), said: "Unless present trends are reversed in the next few months, we now expect total borrowing in 2012/13 as a whole to exceed the total predicted by the OBR at the time of the Budget by more than £20 billion.
"This situation is worrying, and is largely due to the continued stagnation in economic activity. To maintain credibility, the Government should persevere with a realistic plan to reduce the deficit, but if persistently weak growth causes borrowing to overshoot, the UK's credit rating may be endangered.
"Given these difficult circumstances, it is important to continue with spending cuts in areas such as welfare, pensions and the size of the Civil Service. These cuts should be supplemented with policies to boost growth such as more infrastructure spending, a reduction in National Insurance contributions and support for business lending."
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