Big drop in borrowing boosts bid to slash UK’s deficit

Public sector net borrowing stripping out the distorting effects of bank bailouts fell to £13.2bn in the month from £14.4bn a year earlier – broadly in line with expectations.

And the Office for National Statistics (ONS) also revised underlying borrowing for the 2012/13 financial year lower to £115.7bn, down from an earlier estimate of £116.5bn.

The independent Office for Budget Responsibility (OBR), set up to monitor the state’s finances, expects underlying public sector net borrowing to rise in the latest financial year to about £120bn.

The deficit in August was nursed lower by a £1.2bn drop in central government borrowing to £12.7 bn.

Local government borrowing edged up by around £200m to £1.1bn.

Corporation tax receipts were slightly higher at £1.3bn, but income tax receipts fell to £10.5bn from £11.1bn.

A Treasury spokeswoman said: “The economy is turning a corner, but there is a long way to go and the Government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.4 million new jobs.”

Economists said the figures may show the improving economy is starting to filter through to reduce the state’s borrowing needs.

Martin Beck, UK economist at consultancy Capital Economics, said: “August’s public finances data suggests that the economic recovery could be finally starting to make its presence felt in the fiscal numbers.

“More good news is a downward revision to borrowing in 2012/13.”

The economy expanded by 0.7 per cent in the April to June quarter and the Bank of England recently revealed it expects growth of the same amount in the third quarter, as Britain’s economic recovery picks up.

Unlike previous months, the August borrowing figures were not distorted by multibillion-pound transfers of quantitative easing cash or Royal Mail pension 
assets.

July’s data released last month contained a surprise rise in borrowing – compared with a normal surplus – and yesterday’s revised figures showed this deteriorated further to underlying borrowing of £688m.

The ONS said VAT sales tax receipts edged up to £9.2bn from £9bn in August, while there was also a pick-up in stamp duty receipts from home sales, but added there were no other discernible effects on the tax coffers from the improving economy.