George Osborne to miss deficit target after £2.7bn public borrowing increase
THE UK government’s deficit reduction target was dealt a blow as it emerged that net public sector borrowing rose by £2.7 billion in October.
• Net public borrowing much higher than expected in October, rising to £8.6bn in October, a rise of £2.7bn
• Chancellor George Osborne now faces missing borrowing target of £120bn for the year
The Office for National statistics announced that the increase, which excludes financial interventions such as bank bailouts, rose to £8.6 billion last month - a marked increase on the £6 billion that had been projected by analysts.
The news will come as a blow to Chancellor George Osborne’s plans to reduce the UK’s debt deficit as the figures, published before his Autumn Statement, will put further pressure on the public purse.
The Chancellor wants to record borrowing for the full year 2012/2013 of £120 billion, compared with £121.4 billion in the previous year, but today’s announcement makes this scenario look increasingly unlikely.
Analysts have predicted that the coalition government may have to revise their borrowing target by as much as £10 billion.
Vicky Redwood, chief UK economist at Capital Economics, said: “If the OBR (Office for Budget Responsibility) assumes that this trend continues, it will have to revise up its forecase for this year from £120 billion to £130 billion.”
The chances of the Chancellor altering the debt target were further heightened after Bank of England governor Sir Mervyn King effectively endorsed such a move, on the condition that the global economy continued to grow, however slowly.
If Mr Osborne sticks to the debt target, he will be faced with the unpopular decision of announcing potentially large tax rises and further spending cuts in December.
Public sector borrowing for the year to date is £73.3 billion, excluding a one-off £28 billion boost from the transfer of the Royal Mail pension fund into Treasury ownership, which is £5 billion higher than the same period last year.
Within the October figures, the picture was much the same as previous months, with Government spending outstripping tax receipts.
Total tax receipts were 1.8 per cent higher at £47.5 billion in October, while total expenditure rose 7.4 per cent to £52.8 billion.
Tax revenues were dragged down by a drop in corporation tax, which fell 9.5 per cent to £8.1 billion, while spending on social benefits, such as state pensions, jumped 7.7 per cent to £16 billion.
Public sector net debt was £1.1 trillion at the end of October, equal to 67.9 per cent of gross domestic product (GDP), compared with £971 billion or 63.4 per cent of GDP last year.
A spokesperson for the Treasury said: “The economy is healing, but it still faces many challenges.
“These numbers illustrate that, but also show the government’s plans to bring spending under control are on track for the year.”
Labour’s shadow Treasury spokeswoman, Rachel Reeves, said the borrowing figures showed that the chancellor was borrowing millions more to pay for “economic failure.”
“Having failed on jobs and growth, the government is now failing on the deficit too,” she said.
“We need urgent action from this government to create the jobs and growth that are vital to get the deficit down. Unless they do so they will end up borrowing billions more to pay for the cost of economic failure and cause long-term damage too.”