UK public borrowing back on track

21 June 2011 Last updated at 09:40 GMT May's borrowing figure takes some off the pressure off the Treasury Public sector net borrowing fell in May, reversing a surprise overshoot in government borrowing seen in April.

The total borrowing requirement, excluding the cost of bank bail-outs and other interventions, was ?17.4bn for the month, the Office of National Statistics (ONS) said.

This was down 6% from a year ago, helped by a jump in VAT receipts.

It takes some of the pressure off the Treasury, coming after an unexpected 5% rise in April's borrowing figure.

Debt servicing

Total tax revenues rose 8.2% to ?38bn, boosted by the January increase in the VAT rate from 17.5% to 20%, which pushed VAT receipts up 17%.

In contrast, total spending in the month rose just 2.2% to ?51.7bn.

One of the fastest-growing components of spending was interest payments.

The bill for servicing the UK government's debtload, which has now reached 60.6% of annual economic output, rose 8.9% to ?4.4bn, or 8.5% of total government spending.

The government wants to cut total borrowing for the financial year by 15% to ?122bn, in line with the forecast of the Office for Budget Responsibility.

However, two months into the year the government is still struggling: borrowing has increased slightly for the year to date when April's surprise figure is included.

Tough battle

"The numbers for May are more or less in line with expectations," said Philip Shaw, economist at Investec.

"That still leaves progress during the full year so far as disappointing. It's early days, but we would be hoping to see more positive effects of the spending cuts coming through in the figures."

The data for the first two months highlight the the fact that the chancellor faces a very tough battle, according to Howard Archer, economist at IHS Insight.

"Going forward, the chancellor will need reasonable growth to lift tax receipts... and the current softness of the economy does not bode well on this front," he said.

"On the positive side, going forward the public finance figures should increasingly reflect the public expenditure cuts kicking in as many measures were enacted from April."

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UK borrowing reaches April record

24 May 2011 Last updated at 10:11 GMT April's borrowing figure was higher than analysts expected The UK saw its worst April public sector net borrowing on record last month as tax receipts fell, the Office for National Statistics said.

Public borrowing, excluding financial interventions such as bank bail-outs, hit ?10bn, compared with ?7.3bn the previous year.

The ONS said tax receipts in April last year were boosted by a one-off bank payroll tax which raised ?3.5bn.

April's figure was higher than many analysts' expectations of about ?6.5bn.

Economists said the figures were a surprising disappointment.

"The public finances have got off to a pretty bad start this year," said Hetal Mehta, at Daiwa Capital Markets. She warned that the position could worsen if economic growth was weaker than expected.

Samuel Tombs, at Capital Economics, said he believed the government would struggle to meet its borrowing forecasts this year.

Continue reading the main story Hugh Pym Chief economics correspondent, BBC News

On the face of it these are embarrassing figures for the government - embarking on a deficit reduction programme, they have begun the financial year with record borrowing.

The government borrowed nearly ?10bn in April, up from just over ?7bn a year earlier.

But the Treasury argues that whereas the April 2010 figures benefited from the one-off bank bonus tax payment - the new bank levy is spread more evenly across the year.

And there was brighter news for George Osborne with last year's borrowing total now revised down by ?2bn.

However, he added: "Nonetheless, these are just one set of figures and the trend in borrowing should improve as more of the spending cuts kick in later this year."

There was some good news for the government as borrowing figures for the year to March 2011 were revised downwards to ?139.4bn, from ?141.1bn.

The revision was mainly due to the tax take being boosted from a rise in VAT to 20% from 17.5%, said the ONS.

But the higher-than-expected borrowing in April pushed the government's debt to a record ?910.1bn, or 60.1% of GDP.

A spokesman for the Treasury said: "One-off factors affected borrowing, but it is clear from the downward revision to last year's borrowing figures that the government's deficit reduction strategy is making headway in dealing with our unsustainable deficit."

Government spending in April was 5% higher than a year ago at ?54.1bn.

Restoring stability

David Kern, chief economist at the British Chambers of Commerce, said it was clear that the government's plans to reduce the deficit by more than ?20bn over the year was proving difficult.

But he said the government must press on with its plans. "The fragility of the economic recovery is creating a difficult backdrop, but the government must not deviate from its strategy to restore stability in the UK's public finances," he said.

"Businesses support the measures being taken to reduce the deficit, and the emphasis should be on spending cuts rather than tax increases," Mr Kern said.

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