Business

UK public sector borrowing worse than expected in October

Chancellor George Osborne
Image caption Analysts now speculate that the chancellor could introduce tax rises and further spending cuts

The government borrowed much more than expected in October, reducing the chances that the UK will hit its deficit reduction target in 2012-13.

UK public sector net borrowing, excluding financial interventions, hit £8.6bn in October, the Office for National Statistics (ONS) said.

That marked a sharp rise from the £5.9bn borrowed in October 2011.

This is the last set of borrowing figures before the chancellor's Autumn Statement on 5 December.

The headline figure was worse than expected - analysts had forecast borrowing of £6bn.

Corporation tax receipts fell nearly 10% in October, a month when there is usually a heavy inflow to boost the public coffers.

A rise in day-to-day departmental spending also contributed to the higher borrowing.

For the seven months of the financial year so far, borrowing has reached £73.3bn, excluding the one-off effects from the transfer of Royal Mail pension assets.

That is £5bn higher than the same time 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."

But Labour's shadow chief secretary to the Treasury, Rachel Reeves, said the chancellor was borrowing billions more to pay for the cost of his economic failure.

"Having failed on jobs and growth, the government is now failing on the deficit too," she said.

'Wrong direction'

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Chris Williamson, chief economist at Markit, said the low tax receipts reflected the disappointing performance of the economy, which is experiencing weak growth and weak consumer spending.

He told the BBC that he could see no chance of the government now hitting its deficit target of £120bn for 2012-13. Current projections suggest this year's deficit would come in closer to £130bn.

"So it's moving totally in the wrong direction," he said.

"The longer-term prospects are looking much more disappointing than the Office for Budget Responsibility and the government were hoping when they first set these targets out back in March."

He added that Chancellor George Osborne was likely to announce increases in taxes, further cuts in spending, or a combination of the two, when he delivers his Autumn Statement.

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Media captionChris Williamson, Chief Economist at Markit

However, analysts at Credit Suisse said the figures were disappointing but not disastrous.

"To some extent, this poor reading was mitigated by improvements in last month's figure, which was around £0.8bn lower (less borrowing) than previously thought.

"In addition, the good news is that the poor figure appears to have been driven by expenditure rather than receipts data. This suggests that the weakness in the numbers may not be due to weaker GDP performance feeding into weaker tax receipts."

They also pointed out that, overall, central government receipts were up 1.8% on the year to October, while expenditure was up 7.4%.

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