George Osborne set to miss OBR borrowing target on deficit by £10bn

The deficit last month was well below the £10.5bn pencilled in by economists

Chancellor of the Exchequer George Osborne, who will warn political and business leaders that major changes in the global economy could send further shock-waves through the markets. (PA)

The Chancellor is still on course to miss his borrowing target by as much as £10bn, despite better news on the deficit, experts warned yesterday.

Net borrowing fell sharply in December to £7.5bn – compared with £11.7bn a year earlier – as tax receipts improved and the Government tightened its purse strings, according to the Office for National Statistics.

The figure were also flattered by the absence of a hugely controversial payment the UK had to make to the European Union a year earlier to reflect growth upgrades which raised the nation’s contribution to the EU budget.

The deficit last month was well below the £10.5bn pencilled in by economists, marking the best December for the public coffers since 2006.

But George Osborne’s hopes of meeting the Office for Budget Responsibility’s £73.5bn target for the finances this year look slim, with borrowing for the nine months to December at £74.2bn. That leaves the Chancellor relying on a huge surplus in January – typically a big month for income tax payments – to have any hope at all of reaching the target.

Capital Economics’ UK economist Paul Hollingsworth said: “The Chancellor will still find it difficult to meet the OBR’s forecast for the fiscal year as a whole... borrowing still looks likely to overshoot the target this year, possibly by as much as £10bn.”

A big increase in national insurance contributions helped drive up government receipts to £51.3bn last month, £1.8bn ahead of a year earlier. Spending, meanwhile, was £1.1bn lower than last year at £58.5bn, largely accounted for by falling investment spending.