Deficit falls but state spending keeps on rising

Tim Wallace
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GOVERNMENT borrowing fell £11bn in the last financial year, official figures showed yesterday, leaving the budget deficit right on target.

Borrowing came in at £126bn for 2011-12, down from £136.8bn in the previous financial year, with March’s deficit hitting £18.2bn, just up on the £17.95bn of the same month last year.

Those figures bring the deficit down to 8.3 per cent of GDP compared with 9.27 per cent the year before, and take the national debt to £1.023 trillion excluding the bank bailouts.

Current spending rose to £617bn for the year, up from £604.8bn in the previous financial year, driven by an £8.5bn rise in benefits spending to £181.6bn and a £4.5bn rise in debt interest payments to £47.1bn. Tax revenues rose on the year to £484.2bn from £463.7bn, although they fell in March from £33.9bn to £32.8bn.

Economists warned weak revenues show the poor state of the economy, which could throw George Osborne’s deficit plan off track this year.

“Receipts of VAT, income tax and corporation tax all fell year-on-year in March, with corporation tax receipts especially weak,” said Citi’s Michael Saunders. “We expect that revenues will undershoot again in the 2012-13 financial year – and underlying fiscal improvement will stall -- reflecting continued weakness in the economy.

“Assuming the government sticks to its spending plans (rather than, as in 2011-12, underspending), the deficit for 2012-13 will probably exceed the OBR’s £92bn forecast by about £11bn.”