Public borrowing soars to £23.3bn record high

Nick Clark
Wednesday 22 December 2010 01:00
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The public finances were "truly horrible" in November, according to one economist, as borrowing soared to a record high.

The Office for National Statistics (ONS) revealed yesterday that net public-sector borrowing hit £23.3bn in November, worse than expected and one-third higher than a year earlier.

Howard Archer, the chief UK economist at IHS Global Insight, said: "This is dire news for the Chancellor, George Osborne, to digest over Christmas, and is likely to reinforce the Government's belief that there must be no let up in the fiscal consolidation efforts."

There was now a "very serious risk" that the Government will miss its targets for the fiscal year, he added. "Any serious hit to economic activity coming from the prolonged bad weather will only make things harder,"he said.

The level of borrowing – which can be volatile month to month – was pushed up by higher Government spending on health and defence, as well as a bigger contribution to the European Union.

Andrew Goodwin, the senior economic adviser to the Ernst & Young Item Club, said the figures were "a bolt from the blue" before adding: "Up until this point, we had seen a succession of undershoots compared with the previous financial year, but the November figures pretty much wipe out all of the 2010-11 reduction in borrowing in one fell swoop."

The rise in borrowing was attributed to an almost 11 per cent lift in government spending over the previous year.

"That it is largely spending which has caused the surge in borrowing is a concern," Mr Goodwin said. He added that it was partly down to a rise in public-sector interest payments. These had been £3bn in November 2009 but rose to £4.5bn last month. Yet, he added: "By now we should be starting to see the impact of the Coalition's £6bn of 'efficiency savings' yet spending still continues to grow strongly."

Mr Goodwin said: "The strength of spending will provide more fuel for the sceptics who question whether the Government can really achieve the scale of public-spending cuts that it plans."

The size of the current budget deficit rose from £14bn in November 2009, to a record £19.9bn last month, the ONS revealed in its bulletin. Mr Archer said: "A tiny crumb of comfort for the Government is that the public finances still show marginal overall improvement during the fiscal year 2010-11." He added that should current trends extend throughout the fiscal year, the public-sector net borrowing requirement would be about £155bn. Mr Osborne's target was £149bn.

Last month, the Office for Budget Responsibility edged down the forecast public-sector net borrowing requirement in 2010-11 from £149bn to £148.5bn.

The unexpectedly bad borrowing figures add to a difficult end of the year for the economy, with the wintry weather making life difficult for many different types of businesses. Figures from GfK yesterday also revealed that consumer confidence continues to remain very low. This month's index remained flat on November at -21, although it was two points lower than last December. People's confidence fell on their own financial situation over the past year as well as their forecast for the year to come. Confidence also fell in the general economy over the same periods. Nick Moon, managing director of Gfk NOP Social Research, said consumer confidence was "teetering on the brink".

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