Government borrowing rose in 2012-13, ONS figures show

George Osborne Chancellor George Osborne is hoping a reviving UK economy will reduce the budget deficit faster

Government borrowing rose slightly in 2012-13 compared with the previous year, figures from the Office for National Statistics show.

Underlying public sector borrowing was £118.8bn, up from £118.5bn in 2011-12.

The rise comes as a result of the ONS revising down its 2011-12 borrowing figure by £2.4bn to £118.5bn.

The figures could make uncomfortable reading for Chancellor George Osborne, who had previously said annual borrowing was coming down.

However, the latest monthly figures showed that borrowing fell to £12.7bn in May, down from £15.6bn a year earlier.

And on another measure that takes into account a £3.2bn one-off windfall tax payment from Swiss banks and a £3.9bn contribution from the Bank of England's quantitative easing fund, monthly borrowing fell to £8.8bn.

However, public sector net debt - a measure of the total amount the country owes - rose to £1.19 trillion, up from £1.1tn a year ago.

Analysis

The underlying picture has not changed.

Government borrowing was broadly flat over the last two financial years and is likely to be about the same this year. It's good news for the chancellor that the borrowing number for 2011/12 has been revised down by nearly £2.5bn. What is now politically inconvenient for him is that this leaves the figure for 2012/13 slightly higher.

He has set great store by saying that there has been year-on-year deficit reduction since the coalition took office in 2010. The way the figures look now, that is not the case. Of course 2012/13 could well be revised lower in future as new data comes in.

Economically the story remains the same - the government is finding deficit reduction a challenging task. And right how it is not happening.

This means total debt has now risen to 75.2% of gross domestic product (GDP), up from 71.1% of GDP at the end of May 2012.

Treasury Minister David Gauke admitted that while there was "some good news" in the latest figures, the government has "still got an issue with our deficit".

Chris Leslie, Labour's shadow financial secretary to the Treasury, said: "With borrowing now confirmed as rising last year, these figures are another damaging blow to George Osborne's economic credibility."

Savings

The figures could make Mr Osborne's life more difficult in advance of next Wednesday's spending review for the 2015-16 financial year.

He needs to find a further £11.5bn in savings from government departments in 2015-16, in addition to those outlined in the 2010 review.

This is because the economy has not recovered from recession as quickly as the government hoped and tax receipts are down.

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."

David Kern, chief economist at the British Chambers of Commerce, said: "As the economy gradually begins to recover throughout 2013, we expect that public finances will improve.

"Next week's spending review gives the chancellor an opportunity to reallocate resources, focusing on measures to boost growth such as infrastructure investment, while continuing to make real cuts in current spending."

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