Osborne to miss debt target despite fall in borrowing

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Government borrowing fell last month, official figures showed yesterday, in a sign that the Chancellor’s austerity measures are increasingly taking hold.

Public sector net borrowing, excluding financial interventions, was £12.8bn in September, compared with a revised £13.5bn in the same month last year. It was the lowest level of borrowing for a September since 2008.

The improvement was partly driven by a 4.5 per cent fall in central government net investment to £2.4bn, which includes the purchase and sale of assets such as buildings and vehicles.

The figures came as experts warned that the underlying health of the public finances will remain problematic for George Osborne despite the better picture in September.

A slight improvement in overall economic activity was behind a 3.7 per cent rise in tax receipts to £42bn in September.

But the pressures of recession continued to impact Government spending as total expenditure rose 3.7 per cent to £52.5bn, including a 1.6 per cent rise in social benefits, such as unemployment claims.

The Chancellor wants to record borrowing for the full year 2012/2013 of £120bn, compared with £121.6bn in the previous year.

But despite September’s improvement in borrowing, the public finances continue to be worse off year on year.

Stripping out the one-off impact of the transfer of £28bn of assets from the Royal Mail’s pension funds, public borrowing was £65.1bn, up from £62.4bn in the corresponding period in 2011/12.

Mr Osborne is now widely expected to announce in his Autumn Statement in December that the Government will be unable to start bringing down debt as a percentage of GDP in 2015/16.

The chances of this happening were heightened last month after Bank of England Governor Sir Mervyn King effectively endorsed such a move – on condition that the global economy was growing slowly.

If Mr Osborne sticks to the debt target, he will be faced with the unpopular decision of announcing potentially large tax rises and further spending cuts in December.

Public sector debt was £1.1 trillion at the end of September, equal to 67.9 per cent of GDP, compared with £972.5bn, or 63.6 per cent of GDP, in September last year.

Martin Beck, UK economist at Capital Economics, said it still looks like borrowing for 2012/13 will overshoot the forecast of £120bn by about £7bn.

Shadow chief secretary to the Treasury, Rachel Reeves, said: “George Osborne’s pledge to balance the books by 2015 now looks set to be missed, and by some margin.

“We need tough decisions on tax, spending and pay but to succeed in getting the deficit down we also need a plan for jobs and growth.

“Unless the Chancellor takes urgent action to boost the economy now, he will end up borrowing billions more to pay for economic failure and cause long-term damage too.”