Page last updated at 09:38 GMT, Thursday, 18 June 2009 10:38 UK

Public borrowing at record levels

budget deficit

UK public sector borrowing was the highest on record in May, the Office for National Statistics said.

Public sector net borrowing was £19.9bn in May, and has already reached £30bn in the first two months of the financial year.

This is double the level of one year ago, and even higher than the £19bn borrowed in March.

The total outstanding government debt has risen to £774.8bn, £150bn more than one year ago, equal to 54.7% of UK GDP.

In April's budget, the Chancellor, Alistair Darling, forecast that borrowing this year would reach £175bn.

Excluding investment spending, the public sector current budget deficit was also at a record of £17.5bn, compared to £10.6bn in the same month in 2008.

"The public finances for May were absolutely dire, deteriorating even more than feared as tax revenues continued to be decimated across the board," said Howard Archer of IHS Global Insight.

And Capital Economics estimated that the total public borrowing was now on course to reach £200bn, or 14% of GDP.

Taxes down, spending up

May is traditionally a weak month for government receipts, following income tax receipts that are received in April.

But the figures demonstrate the sharp decline in government revenues across the board.

Corporation tax receipts fell by 27%, VAT revenues were down 18%, and income tax fell 11% compared with the same month in 2008.

Meanwhile, government spending was boosted by additional outlays for unemployment benefit, with spending on benefits up 8% or £1bn. Unemployment has risen sharply to a 12-year high of 2.26 million.

Overall, government spending was up 16% in May to £50.6bn, while government tax receipts were just £30.6bn.

Last month, the rating agency Standard and Poor warned that the soaring UK public debt levels had led it to put Britain's credit rating on notice that it could be downgraded.

It did not change the UK's triple-A rating, but said it was at risk without a credible plan to put its debts on a "secure downward trajectory" by the next government.

"Without a credible plan to rein in spending, the debt burden on UK taxpayers will be colossal," said Hetal Mehta, Senior Economic Advisor to the Ernst & Young ITEM Club. "There is continued pressure on the Government to tighten fiscal policy further."

The rapidly growing public borrowing will fuel the political debate about what level of cuts needs to be made to public spending to bring the budget into balance.

On Wednesday, the Prime Minister, Gordon Brown, accused the Conservatives of planning to cut "vital services" by 10% - a charge David Cameron rejected.

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Telegraph Borrowing hits record - 4 hrs ago
Finance 24 British recession darkens - 13 hrs ago
The Times Huge rise in public sector borrowing renews fears for Britains credit rating - 33 hrs ago
Sydney Morning Herald British public finances in deep trouble - 34 hrs ago
Sky News Figures Show Soaring Govt Borrowing - 44 hrs ago

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