Borrowing increase a blow to George Osborne's plan

 

Stefan Rousseau/PA Wire Chancellor George Osborne
Chancellor George Osborne

CHANCELLOR George Osborne’s debt-busting plans were dealt a blow when figures showed underlying Government borrowing rose around £500m in June.

Public sector net borrowing, excluding distortions such as bank bailouts and quantitative easing (QE) cash transfers, increased in June to £12.4bn from £11.9bn a year earlier, the Office for National Statistics (ONS) said.

However, including a £3.9bn transfer of QE cash from the Bank of England’s asset-buying drive, June’s deficit fell by £3.4bn year-on-year to £8.5bn.

The ONS also cast doubt on how much money the Government will claw back from Swiss bank accounts, knocking May’s �3.2bn estimate to just £342m in actual receipts.

There was some cheer for the Government as a further revision showed annual underlying public sector net borrowing fell by £2.1bn in the last financial year, reversing last month’s upward revision.

May’s borrowing figures were flattered by the £3.2bn estimate of Swiss taxes, but the ONS said yesterday it is taking a “more cautious approach“ on how much tax it will be able to recoup from Swiss accounts after fresh information from the Swiss Bankers Association.

It will now only record the Swiss cash when it is received.

The Government struck a deal in January with Swiss authorities to recoup tax from UK residents’ bank accounts in the country.

Higher local government borrowing in June offset a 15.2% increase in tax receipts from businesses and households to drive the underlying monthly deficit higher.

But the ONS said figures are likely to be subject to revisions as more data is received from councils.

The ONS revised the underlying deficit for the year to the end of March 2013 lower by £2.3bn to £116.5bn due to higher tax receipts.

That meant the 2012/13 deficit was £2.1bn lower than in 2011/12, reversing last month’s £300m upward revision to the annual result.

A Treasury spokesman said: “While we can and will take nothing for granted, the economy is moving from rescue to recovery: the economy is growing; the deficit and unemployment are falling.”

The independent Office for Budget Responsibility (OBR), set up to monitor the state’s finances, expects the deficit to come in at around £120bn this financial year – which would mark an increase on 2012/13.

James Knightley, economist at ING Bank, said while borrowing was “not quite as good as hoped for“, the numbers suggest the Government’s full-year forecast remains on track.

But Martin Beck, UK economist at consultancy Capital Economics, said the UK’s public finances remain a “long way from health“.

“The public finances have yet to see much of a boost from the nascent upturn,” he said.

While we can and will take nothing for granted, the economy is moving from rescue to recovery

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