ONS figures showing borrowing of £18bn in May – up from £15bn in same month in 2011 – are blow for George Osborne
Britain’s public finances sank deeper into the red last month as weaker tax receipts from the recession-hit economy depleted the Treasury’s coffers.
Figures from the Office for National Statistics showed that net borrowing excluding financial help to Britain’s banks stood at almost £18bn in May – up from just over £15bn in the same month in 2011.
City analysts had been expecting net borrowing to come in at around £14.5bn in May but the ONS said income tax receipts were down more than 7% on May 2011 while government spending was up by 8%.
The deteriorating state of the public finances is a setback for the chancellor, George Osborne, who has announced tax increases and spending cuts in an attempt to trim Britain’s record peacetime budget deficit.
Rachel Reeves, Labour’s shadow chief secretary to the Treasury, said they were “another nail in the coffin” of David Cameron and George Osborne’s economic plan and that the government’s pledge to balance the books by 2015 “is now in tatters.”
She said: “As we consistently warned, if you choke off the recovery and push the economy into recession, the government ends up having to borrowing more not less.”
Reeves added: “If we’re to succeed in getting the deficit down we need tough decisions on tax, spending and pay but we also need a plan for jobs and growth. Unless the chancellor finally changes course and adopts a more balanced plan he will end up borrowing billions more to pay for economic failure and cause long-term damage to our economy too.”
The ONS said that in the first two months of the 2012-13 financial year, net borrowing would have been £4bn higher had it not been for the one-off windfall for the Treasury from the transfer of £28bn of assets from the Post Office pension fund.
In a further blow to the chancellor, the ONS said changes to the way it calculates the public finances had resulted in the deficit for 2011-12 being revised up by £3.2bn to £127.6bn.
City analysts said the figures cast doubt on forecasts from the independent Office for Budget Responsibility that borrowing in 2012-13 would be around £93bn.
James Knightley, an economist at ING bank, said: “It appears that the main problem was with income tax receipts, which were down 7.3% year on year in April/May on the same period last year. Meanwhile, the effectiveness of government austerity measures again comes into question with spending actually rising – note also that government spending has been the main growth contributor to GDP since the start of the financial crisis.
“We continue to see upside risk for UK government borrowing given the disappointing activity data and very weak wage growth, which we suspect will necessitate upward revisions to official government debt and borrowing forecasts.”
Vicky Redwood, UK analyst at Capital Economic, said: “After the transfer of the Royal Mail pension fund temporarily flattered the UK public finances in April, it was back to “deficits as normal” in May.
“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.”