New blow for government as borrowing hits £10bn

THE government's deficit reduction plans have been dealt a blow after official figures revealed last month's borrowing figures were the highest ever recorded for the month of April.

Public borrowing, excluding financial interventions such as bank bail-outs, hit 10 billion, compared with 7.3bn the previous year, said the Office for National Statistics (ONS).

The figure, which is higher than City expectations of 6.5bn, will cast doubt on whether the government can meet its target of bringing the deficit down to 122bn this financial year.

The ONS said tax receipts fell year on year, which had been boosted to the tune of 3.5bn a year earlier by the tax on bankers' bonuses.

However, there was some good news for the government as borrowing figures for the year to March 2011 were revised downwards to 139.4bn, from 141.1bn.

This was mainly caused by tax receipts being boosted after VAT was hiked to 20 per cent from 17.5 per cent previously, said the ONS.

But the higher-than-expected borrowing in April pushed the government's debt to a record 910.1bn, or 60.1 per cent of GDP.A spokesman for the Treasury said: "One-off factors affected borrowing this month, but it is clear from the downward revision to last year's borrowing figures that the government's deficit reduction strategy is making headway in dealing with our unsustainable deficit."

The Treasury said the bonus tax caused a glut of payments the previous April. Its new levy on banks' balance sheets will raise more money than the bonus tax but will be spread more evenly throughout the year, it added.

Spending in April was 5 per cent higher than a year ago at 54.1 bn. This was mainly caused by a 26 per cent rise in interest payments. Tax receipts came down 0.8 per cent to 42.9bn, mainly as a result of income from the bank bonus the year before.

The latest economic situation was the subject of a lengthy debate at yesterday's Cabinet meeting led by Chancellor George Osborne.

Mr Osborne warned colleagues that the global situation posed "risks" to the UK's recovery - and sought updates from colleagues on the progress of contributions to the government's growth review.

Labour Treasury spokesman David Hanson said: "This is just one month's figures, so we should be cautious.

"But it is concerning that despite the cuts and tax rises that started to kick in last month, we saw record borrowing for the month of April.

"As we have been warning, cutting too far and too fast risks a vicious circle. Slow growth and more people out of work and on benefits will make it harder to get the deficit down."That's why the government is now forecast to borrow 46bn more than they were expecting last autumn."

"And instead of giving the banks a tax cut this year, George Osborne should repeat the bank bonus tax to get young people back to work, build more affordable homes and support small businesses."

Nida Ali, economic adviser to the Ernst & Young ITEM Club said some of the head-start the government had gained by beating its borrowing target of 146 billion in the past year had been eroded. Miss Ali said: "A fall in central government tax receipts and an acceleration in spending growth doesn't paint a particularly promising picture for the austerity programme.

"Given the worst of the pain is yet to come, the Chancellor's target of reducing borrowing by 30 billion in 2011-12 looks more stretching than ever, especially with economic growth looking likely to disappoint."