Pressure rises to cut debt as £14.5bn borrowing revealed

Published on 20/07/2010 17:54

THE pressure on the government to cut Britain's debt increased yesterday as new figures revealed it had increased by much more than expected.

• Graphic. Picture: TSPL

According to the Office of National Statistics, government borrowing reached 14.5 billion last month, well above the 13.1bn forecast by economists.

This came as Ireland, the only EU country with a higher proportion of debt compared to GDP than the UK, had its credit rating reduced.

In addition a National Audit Office report warned that government efforts to reduce spending by 35bn by the end of the 2010-11 to help bring borrowing down will not be met.

The woes facing Britain's battered finances showed few signs of easing as the ONS confirmed the budget deficit widened by another 700 million in June to 12.6bn.

Last month's public sector net borrowing was 200m less than the 14.7bn seen a year ago, but was more than the 13.5bn expected by analysts.

Figures excluding the temporary effects of State financial intervention showed borrowing rose to 15.2bn, up from 14.9bn in June 2009.

The coalition government has made it clear that reducing the deficit is its highest priority, to avoid the fate of Greece and Ireland who both had their credit ratings reduced.

A Treasury spokesman said: "The UK is forecast to have the largest deficit in the G7 this year and is borrowing 1 for every 4 it spends.

"The figures for June demonstrate the urgent priority tackling the deficit represents, with borrowing higher than last June despite higher tax receipts."

Both Liberal Democrat and Conservative ministers have warned that a reduction in credit raiting will mean higher interest rates and more job losses.

The proposals include cuts of up to 40 per cent of some departmental budgets, as well as a further slashing of the welfare budget, already reduced by 11bn in the emergency Budget.

However, the government's plans to accelerate cuts and increase VAT from 17.5 per cent to 20 per cent have brought warnings from Labour of a double dip recession, similar to the Great Depression of the 1930s.

The report noted: "The committee shares the Chancellor's desire to make sure that the measures are fair, both in absolute terms, and as a proportion of income.

"The committee is concerned that the poorest fare slightly less well than middle-income groups, as a result of the impact of all measures and when considered as a percentage of net income."

Prime Minister David Cameron said the UK could not delay cutting its deficit.

"We're not a reserve currency, we're not the United States of America, we can't take our time with this," he said.