Public Borrowing Surges As George Osborne's Plans Derailed By Double Dip Recession

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GEORGE OSBORNE
George Osborne's Fiscal Plan For The Financial Year Is Under Threat Because Of The Recession | PA

The scale of the challenge facing George Osborne to cut Britain's debt was laid bare on Tuesday morning when official figures showed public borrowing rocketed in May.

The stats suggested the effects of the double-dip recession were starting to be felt; the debt rose because of a collapse in income tax receipts coupled with a surge in welfare payments.


JamesLyons
Borrowing shoots up after George Osborne lands the UK with a double-dip recession. Who'd have thunk it?

Public sector net borrowing, excluding financial interventions, such as bank bailouts, was £17.9 billion in May, up from £15.2 billion the previous year.

The surge was driven by a 7.3% fall in income tax receipts and an 11.7% jump in welfare benefits, providing evidence that the struggling economy is piling pressure on the Government's already-stretched finances.

While May is only two months into the financial year, the weak figures will trouble Chancellor George Osborne, who is aiming to trim total borrowing in 2012/2013 to £120 billion, excluding a one-off boost from the transfer of the Royal Mail pension fund into Treasury ownership.

The Chancellor is in the process of rolling out a series of tough austerity measures in a bid to cut the budget deficit, which include billions of pounds of spending cuts and hundreds of thousands of public sector job losses.

But the economy fell back into recession in the first quarter of the year, which has significant implications for tax revenues, while high levels of unemployment are increasing the burden on the state.


Alberto Nardelli
UK borrowing in May was £17.9bn, from £15.2bn in May 2011. To be fair, the government has had to spend a lot of money on umbrellas lately.

In a further blow to Mr Osborne's hopes, total borrowing for the last three financial years was revised upwards due to methodology changes.

Total borrowing, excluding financial interventions, in 2011/2012 was revised up by £3.2 billion to £127.6 billion, above the £126 billion target for that year.

Total government spending was 7.9% higher in May at £55.1 billion, while total tax receipts only rose by 1.6% to £38.7 billion.

Net debt excluding financial interventions now stands at £1.01 trillion, compared with £921.3 billion last May.

Debt as a percentage of gross domestic product - a broad measure for the total economy - hit 65% in May, up from 61.3% last year.

April's borrowing figures were flattered by a one-off £28 billion lift from the value of assets transferred from the Royal Mail pension plan.

But excluding this one-off impact, total borrowing for the current financial year stands at £28.4 billion.

Earlier this month, the Chancellor and Governor of the Bank of England Sir Mervyn King unveiled a multibillion-pound lending scheme to stimulate economic growth - but ministers insisted the move was not a "Plan B".

A spokesman for the Treasury said: "It is too early in the financial year to draw conclusions about the year as a whole, especially as today's public finances data include a number of one-off factors and temporary distortions.

"The Government is committed to dealing with the deficit, which will help keep interest rates lower for longer and support millions of families and businesses across the country."

Vicky Redwood, chief UK economist at Capital Economics, said borrowing is on course to overshoot "significantly" the official full-year forecast of £120 billion.

She said: "The main problem remains a sharp slowdown in tax receipts. And with the economy probably still in recession, receipts are likely to remain weak.

"The combination of worsening public finances and renewed recession is likely to intensify calls for the Government to change tack on its austerity programme."

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