Government under pressure over record borrowing

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Indy Politics

New figures heaped more pressure on the Government's borrowing targets today after Britain slumped into the red by a record £23.3 billion in November.

Health and defence spending and higher European Union payouts ensured the monthly figure - excluding financial interventions by the Government - beat the £17.4 billion borrowed a year earlier by a margin of £5.9 billion.

Some economists warned the coalition is now in danger of exceeding the annual target set by the tax and spending watchdog, while the Treasury said the figures reinforced the need for its belt-tightening austerity measures.

Chancellor George Osborne is likely to seize on the bigger-than-expected figures as proof of the need for his £81 billion package of spending cuts and planned hike in VAT early next year.

The latest figures from the Office for National Statistics (ONS) stunned the City as analysts were braced for a figure in the region of £17 billion.

Total public borrowing for the year to date now stands at £104.4 billion, the ONS said, creeping closer to the Government's target of £148.5 billion for the financial year to March 31, which is based on the Office for Budget Responsibility's recently downgraded forecast.

It also brought net debt to £863.1 billion, which represents 58% of gross domestic product - another monthly record.

Jonathan Loynes, chief economist at Capital Economics, said based on November's figures, borrowing is likely to total about £155 billion in the fiscal year 2010-11 as a whole, some £7 billion above the OBR's latest forecast.

He said: "Given that the economy has expanded rather more quickly than the OBR anticipated over recent quarters, current borrowing might have been expected to come in rather lower."

He added: "Overall, there is nothing here to weaken the Government's determination to see through its austerity programme. But we continue to doubt that the economy will weather the coming fiscal storm as well as it hopes."

Howard Archer, chief UK and European economist at IHS Global Insight, said today's figures were "truly horrible".

He said: "There is now a very serious risk that the Government will miss its fiscal targets for 2010/11.

"Much will depend on how well growth holds up over the rest of the fiscal year, and any serious hit to economic activity coming from the prolonged bad weather will only make things harder."

While total tax revenues are increasing, economists have warned the Government is battling against ever-increasing interest payments on its mammoth debt levels. This month was no exception with interest payments rising nearly 50% to £4.5 billion.

But the Government still has four months to hit its target and Allan Monks, economist at JP Morgan, said it is still achievable.

He said: "It is reasonable to assume that the OBR had anticipated some step up in borrowing towards the end of the year, which may explain why the office chose not to meaningfully revise down its borrowing projection for the current fiscal year."

A spokesman for the Treasury said today's figures backed the Government's fiscal-tightening measures and were in line with the forecasts of the tax and spending watchdog.

He said: "November's borrowing figures show why the Government has had to take decisive action to take Britain out of the financial danger zone.

"These outturns are also in line with the OBR's latest forecast for borrowing to fall by almost £10 billion this year compared to last, and for tax receipts to increase by over 7% year on year."