Osborne slammed as government spending rises

CHANCELLOR George Osborne has come under fire after official figures showed that an increase in government spending last month dealt a surprise blow to attempts to cut the deficit.

File photo of George Osborne, taken in 2009 at Scottish Conservative Party conference. Picture: Ian Rutherford

Underlying public-sector borrowing rose by £1.3 billion, the Office for National Statistics ONS) said – the first July deficit in three years.

The state usually records a surplus in July, due to the timing of company and individual tax payments, but these were last month outstripped by a 4 per cent rise in spending by central government departments – despite an increase in income from taxes.

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Analysts had expected a £2.5bn surplus and warned the figures suggested Britain’s improving economy had yet to boost the state’s finances.

The figures also showed that underlying public-sector net debt as a proportion of the UK’s gross domestic product (GDP), or total output, hit a record for July at 74.5 per cent. Economists and opposition politicians warned that the government needed to curtail spending to bring the deficit under control.

“While tax receipts have risen, the official statistics show that government has had limited success in curtailing spending,” said Daniel Solomon, of the Centre for Economics and Business Research. “The government will have to get a grip on spending in the next parliament.”

Chris Leslie, shadow financial secretary to the Treasury, said: “Because of his continued complacency, George Osborne is failing to get the deficit down because he has failed to boost living standards and we have seen three years of almost flat economic growth.

“His pro­mise to balance the books by 2015 is now in tatters.”

The ONS reported that total public-sector net borrowing, excluding distortions such as bank bail-outs and quantitative easing (QE) cash transfers, was £488 million, compared with an £823m surplus a month earlier.

Once a transfer of about £400m of QE cash was included, public-sector net borrowing was £62m in July, £885m higher than a year earlier.

The report said higher central government spending was spread across departments, and the Treasury expected this to be revised lower.

Total tax receipts excluding QE cash were 3.4 per cent higher year on year at £54.1bn in July, helped by increases in VAT sales tax, income tax, National Insurance contributions and stamp duty on home purchases.

“The government borrowing data are disappointing,” said Blerina Uruçi, of Barclays Research. “However, the fact receipts held up well is likely to provide some comfort for the government.”

The independent Office for Budget Responsibility expects the total deficit to come in at around £120bn for the year to the end of next March, above last year’s £116.5bn deficit.

A Treasury spokeswoman said: “Strong tax receipts in July confirm that the economy is moving from rescue to recovery.

“There is still a long way to go as the UK recovers from the biggest economic crisis in living memory, and the government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.3 million new jobs.”

Pay-day nation

Almost 20 per cent of people are struggling to pay for day-to-day costs three weeks after pay day.

One in four workers say their finances have had a negative effect on their health, according to the Post Office’s Current Account Footprint Report – while 15 per cent say they are forced to rely on credit cards, overdrafts and savings on a monthly basis to dig themselves out of a hole.

John Willcock, head of financial services at the Post Office, said: “It is a concern that we are becoming ‘pay-day’ Britain.”