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Borrowing figure blow to deficit plans

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The government’s deficit reduction plans have been dealt a blow after official figures revealed that last month’s borrowing figures were the highest ever recorded for the month of April.

Public borrowing, excluding financial interventions such as bank bail-outs, hit £10bn, compared with £7.3bn the previous year, said the Office for National Statistics (ONS).

The figure, which is higher than City expectations of £6.5bn, will cast doubt on whether the government can meet its target of bringing the deficit down to £122bn this financial year.

The ONS said tax receipts fell year on year, which had been boosted to the tune of £3.5bn a year earlier by the tax on bankers’ bonuses.

However, there was some good news for the government as borrowing figures for the year to March 2011 were revised downwards to £139.4bn, from £141.1bn.

This was mainly caused by tax receipts being boosted after VAT was hiked to 20% from 17.5% previously, said the ONS.

But the higher-than-expected borrowing in April pushed the government’s debt to a record £910.1bn, or 60.1% of GDP.

A spokesman for the Treasury said: “One-off factors affected borrowing this month, but it is clear from the downward revision to last year’s borrowing figures that the government’s deficit reduction strategy is making headway in dealing with our unsustainable deficit.”

The Treasury said the bonus tax caused a glut of payments last April. Its new levy on bank’s balance sheets will raise more money than the bonus tax but will be spread more evenly throughout the year, it added.

Spending in April was 5% higher than a year ago at £54.1bn. This was mainly caused by a 26% rise in interest payments to £1bn as the government services its growing debts and interest rates rise along with inflation.

Tax receipts came down 0.8% to £42.9bn, mainly as a result of income from the bank bonus the year before.

Samuel Tombs, a UK economist at Capital Economics, said the UK will struggle to meet its budget reduction targets this year, because economic growth will be weak.

He added: “April’s UK public finance figures got the new fiscal year off to a bad start.

“Given that borrowing for the 2011-12 fiscal year as a whole is projected to be £122bn this year, about 15% below last year’s actual figure, this is clearly bad news.

“Nonetheless, these are just one set of figures and the trend in borrowing should improve as more of the spending cuts kick in later this year.”

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