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Concern Over Chancellor George Osborne's Deficit-Cutting Plans

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The chancellor has come under pressure over public borrowing figures
The chancellor has come under pressure over public borrowing figures

Chancellor George Osborne's deficit-busting plans will come under more pressure on Friday as figures show government borrowing is on course to miss full-year targets.

Public sector net borrowing, excluding financial interventions such as bank bailouts, is expected to be £13.3 billion in June, compared with £13.1bn last year.

The weak figures will trouble the chancellor, who wants to trim borrowing in 2012/2013 to £120 billion, excluding a one-off £28bn boost from the transfer of the Royal Mail pension fund into Treasury ownership, from £127.6bn last year.

This compares with borrowing of £125.7 billion in the last financial year, which was revised down to below the Office for Budget Responsibility's (OBR) forecast of £126 billion.

Osborne is in the process of rolling out billions of pounds of spending cuts and hundreds of thousands of public sector job losses in a bid to slash the budget deficit.

June's borrowing figures will be impacted by a lack of tax receipts, which analysts said was a consequence of the recession and sluggish economic recovery.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "June's public finances are expected to have been pressurised by the hit to tax revenues coming from weakened economic activity. This is seen outweighing any beneficial impact of more fiscal tightening starting to kick in."

May's borrowing figures were higher than the same month last year as the double-dip recession forced a plunge in income tax receipts and a rise in welfare benefits.

Some economists have warned that the chancellor is already on course to significantly overshoot his full-year borrowing target of £120bn, while others have said the country's prized AAA credit rating is under threat.

Last week, the official forecaster warned the government must find £17bn of additional spending cuts or tax hikes at the end of its current austerity plan or eventually face a £65bn hole in the public finances.

The Office for Budget Responsibility (OBR) said the additional £17bn in savings by the year to April 2018 would be needed to get Britain's debt back to pre-crisis levels by 2061.

The OBR has predicted that borrowing will fall from £124.4bn last year to £92bn, including the Royal Mail pension impact, in 2012/2013 and £98bn in 2013/2014.

Last week, Mr Osborne and Bank of England governor Sir Mervyn King launched a multibillion-pound lending scheme to stimulate economic growth - but ministers insisted the move was not a "plan B".

Philip Shaw, chief economist at Investec, said the chancellor was set to overshoot official forecasts "unless the economy suddenly finds a new lease of life", while Vicky Redwood, chief UK economist at Capital Economics, said: "More bad news for the Government comes in the form of another poor set of UK public finance figures."

She added: "Borrowing therefore remains on course to overshoot the OBR's full-year forecast by a long way - on current trends, by about £20 billion."

A Treasury spokesman said: "It is too early in the financial year to draw conclusions about the year as a whole. This is volatile data and is prone to revision - borrowing for last year has been revised again and is now estimated to be below the OBR's forecast."

Labour Treasury spokeswoman Rachel Reeves said: "After yesterday's IMF report, these figures are another damaging blow to David Cameron and George Osborne's failed economic plan.

"By choking off the recovery and pushing the economy into recession the Chancellor has ended up borrowing more - as we repeatedly warned.

"This all comes on top of the extra £150 billion the Government has already admitted it will have to borrow to pay for the costs of high unemployment and slow growth.

"Trying to raise taxes and cut spending too far and too fast has badly backfired and the Government's pledge to balance the books by 2015 is now in tatters."