Surprise rise seen in borrowing
Government borrowing reduced by nearly £11 billion over the last financial year, despite a surprise rise in the figure for March.
Public sector net borrowing, excluding financial interventions such as bank bail-outs, was £18.2 billion in March, up slightly on a year ago and against City hopes of £16 billion, the Office for National Statistics (ONS) said.
But the Government still met the Budget day forecast, announced by its tax and spending watchdog, for borrowing of £126 billion in the year to the end of March. This was down from £136.8 billion the previous year, after revisions in previous months.
Earlier in the financial year, the Office for Budget Responsibility predicted the borrowing figure would fall to £122 billion but it effectively moved the goalposts after the economy worsened.
The reduction in borrowing over the year was made with the help of tax increases, such as the hike in VAT to 20% from 17.5% and cuts in Government spending.
March's borrowing figure, which showed the biggest rise since November 2010, helped push the Government's net debt back over the £1 trillion mark at 66% of gross domestic product (GDP).
The rise in March's borrowing figure was driven by a fall of corporation tax from £1.8 billion last year to £1.2 billion, while VAT was down 1% to £9.4 billion. But the Government's borrowing figures over the previous 11 months were revised downwards by £2.2 billion.
The ONS figures showed that central Government spending, excluding payments for benefits and interest, fell slightly for the first time since 1955, to £388.4 billion. But economists say the Government will have a tougher task meeting forecasts to reduce borrowing to £120 billion in the current financial year as the economy struggles and unemployment rises, which will hurt its tax revenues and increase benefits payments.
The ONS will reveal on Wednesday whether the UK has avoided a return to recession. The City expects GDP to increase 0.1% in the first quarter of 2012, after a 0.3% contraction in the final quarter of 2011. That would mean the economy has narrowly avoided a technical recession, defined as two quarters of decline in a row.
Labour Treasury spokeswoman Rachel Reeves said: "There do need to be tough decisions on tax, spending and pay. But by choking off the recovery, pushing up unemployment and so borrowing billions more to pay for economic failure, cutting spending and raising taxes too far and too fast has backfired. And this Government's pledge to balance the books by 2015 is now in tatters."