Public finance figures give boost to Osborne strategy

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Chancellor George Osborne’s austerity campaign was boosted after new figures showed the Government remained in sight of its fiscal targets.

A year after Mr Osborne detailed his far-reaching spending cuts, economists said there was still a chance that the £122bn borrowings forecast by the Government’s tax and spending watchdog for 2011-12 could be met.

The outlook follows better than expected figures for September, with borrowings of £14.1bn better than the £15.4bn seen a year ago, while August’s estimate was also revised lower by around £2.2bn.

The updates by the Office for National Statistics (ONS) meant the Government has lopped £7.5bn from borrowings in the first half of the year.

To match the March forecast for a £122bn deficit, the fall over the next six months will have to be slightly bigger at £7.8bn.

North Sea oil tax rises and the delayed impact of the 50p income tax rate may help meet this target, but experts in the City warned that the outlook for social security spending as unemployment rises and the impact of the current economic uncertainty would put strain on current fiscal forecasts.

The UK economist at Capital Economics, Samuel Tombs, said September’s figure was around £1bn less than the City had been expecting and meant borrowing was now broadly on track to meet the full year forecast of £122bn.

He added: “Nonetheless, we doubt these figures fully reflect the recent slowdown in the pace of economic growth and therefore we continue to expect the trend in borrowing to deteriorate in the second half of the fiscal year.”

Treasury coffers were boosted during September after tax receipts rose 4.2 per cent to £40bn, boosted by the 20 per cent rate of VAT. Spending on social benefits and debt interest was up on last year, but other spending by Government Departments – mostly on public services – fell.

A Treasury spokesman said: “One year on from the spending review, and despite the global economic turbulence stemming from the crisis of confidence in the eurozone, today’s figures show the Government’s progress in delivering its deficit reduction plan.”

The Office for Budget Responsibility is due to revise its forecasts on November 29.

Howard Archer, chief economist at IHS Global Insight, said: “The September public finance figures provided some very welcome good news for Mr Osborne.

“However, it seems inevitable that the public finances will be increasingly pressurised over the coming months, so he looks unlikely to achieve his targets.”

The figures came a day after the TUC claimed rising unemployment and increased spending on social security had created a near-£3bn “hole” in the Government’s deficit target.

A study of official figures by the union organisation showed that the rising jobless total and “faltering” economic growth left tax revenues running a third below the Office for Budget Responsibility forecast made in March.