Chancellor George Osborne’s deficit-busting plans received an embarrassing blow after revised official figures showed Government borrowing actually increased in the last financial year.
The Office for National Statistics (ONS) revealed public-sector net borrowing stood at £118.8bn in the year to the end of March - around £300m higher than the £118.5bn recorded for 2011/12.
The revisions to annual data overshadowed encouraging figures for May, which showed a deal to recoup £3.2bn of taxes from Swiss bank accounts helped cut public sector borrowing to £12.7bn from £15.6bn a year earlier.
The revelation comes ahead of the Chancellor’s spending review next week, when Mr Osborne will unveil plans to slash departmental spending in 2015/16.
The Government struck a deal in January with Swiss authorities to recoup tax from UK residents' bank accounts in the country.
The ONS said the £3.2bn payment from Swiss banks was an estimate, with the actual amount set to be confirmed when the money is received in July and August.
But economists said the figures show the Government faces an uphill battle to cut the deficit, once the flattering effects of the tax deal and the Bank of England’s quantitative easing programme are stripped out.
Chancellor George Osborne will next week outline how he plans to tackle stubbornly high Government borrowing when he reveals the results of his 2015-16 spending review.
Vicky Redwood, chief UK economist at Capital Economics, said: “With borrowing still at very high levels, next week’s spending review is a reminder of how much austerity still lies ahead.
“Indeed, the review will detail how only a fraction of the pain that still lies ahead will be achieved.
“The economic recovery still faces an uphill battle to establish itself against the continued drag from the public sector.”