Page last updated at 11:53 GMT, Thursday, 18 December 2008

Public sector borrowing hits high

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The government is having to borrow heavily

The UK's public sector finances deteriorated sharply in November, with the level of borrowing soaring to a fresh all-time monthly high.

Net borrowing totalled 16bn last month, said the Office for National Statistics, much higher than the 13.7bn predicted by analysts.

Borrowing for the first eight months of the financial year now totals 56.1bn, nearly double the figure one year ago.

The chancellor has already warned net borrowing could hit 118bn next year.

The figures suggest that the government's is already falling behind its target of borrowing 77bn in this financial year.

"The public finances look pretty awful," said Vicky Redwood of Capital Economics.

"It's just worrying that they are that bad this early on in the recession."

Tax impact

The total government net debt was 650bn, or 44.2% of GDP, compared to 615bn one year ago.

The debt figures have been swollen by the growing cost of the government's bail-out of the banking sector, including taking major stakes in the Royal Bank of Scotland and Lloyds TSB.

The growing budget deficit is likely to get worse in December, when the government will receive reduced VAT receipts after its cut in the rate to 15%.

"The deepening economic downturn is taking an increasing toll on tax receipts (VAT, corporation tax, income and capital gains tax) while extremely low housing market activity and markedly falling house prices is hitting stamp duty receipts," said Howard Archer of IHS Global Insight.

Many economists argue that the slowdown is likely to be longer and deeper than the government predicts, which could make the budget deficit even larger than forecast.

Gemma Tetlow of the Institute for Fiscal Studies says that the figures show that tax receipts were down 5.2% on the same month one year ago, while spending was up by 6%. She added that the government's own projections suggested that tax revenues would continue to fall.



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