Cheer for Chancellor as UK borrows less than expected

PUBLIC sector borrowing for the last financial year was £5 billion lower than expected, prompting government claims that their austerity measures are working.

Figures published by the Office of National Statistics (ONS) yesterday showed that borrowing in the financial year 2010-11 was 141.1 billion, representing a modest decrease on the 146bn expected.

However, it is still at the second-highest level compared with GDP in the UK since 1945.

But the latest statistics provide some relief for Chancellor George Osborne, who was hit by increased borrowing figures in the month before he unveiled his Budget.

The government is rolling out deficit-busting austerity measures, which include 81bn of spending cuts and January's VAT hike from 17.5 per cent to 20 per cent.

There was further good news for Mr Osborne with figures also revealing that public sector borrowing is 15.4bn lower than it was this time last yearb when net borrowing excluding financial interventions was 156.5bn.

The improved borrowing figures appear to have been helped by a surprise rise in retail sales by 0.2 per cent last month.

However, economists have warned that the impact of the fiscal squeeze will start to kick in this month, so the rate at which public finances improve over the coming months will be critical.

A spokesman for the Treasury said this week's credit rating downgrade to the United States government's debt outlook by agency Standard & Poor's showed concerns persisted over budget deficits.

The government needed to stick to its plan "to pay off the nation's credit card over the rest of this parliament", the spokesman added.

While the forecast-beating figures will be welcomed by the Treasury, Britain's borrowing is still higher than that of Greece or Portugal, both of which were forced to turn to the European Union for a multi-billion-pound bail-out.

Total tax receipts shot up by 13.1 per cent in February to 34bn, the ONS said, helped by the overall improved economic performance through the past year and the VAT hike.

James Knightley, economist at ING Bank, said the data was "encouraging".

He said: "If the UK economy can keep growing and fiscal austerity continues at its planned pace, then there is a very good chance that the government can achieve its aim of a zero structural deficit within the current parliament."

However, Labour has warned that the borrowing figures do not give a full pictore of what is happening to the economy.

David Hanson, Shadow Treasury minister, said: "We will be keeping a close eye on what happens to the borrowing figures over the coming years as the Tory-led government's deep spending cuts and tax rises kick in.

"As last month's Budget revealed, slower growth, higher unemployment and higher inflation mean that the government is now planning to borrow 46bn more than they were expecting.

"That's a vicious circle, because without strong growth and more people in work it's harder to get the deficit down.

"The fact is that a year ago, when Labour left office, unemployment was falling and growth was picking up strongly, which meant borrowing came in 21bn lower than forecast. So the UK economy should be growing strongly now."