New cuts as debt hits £1.1 trillion

 
Tim Wallace
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GOVERNMENT borrowing jumped again in December despite George Osborne’s efforts to bring the deficit down, as the chancellor yesterday ordered Whitehall to prepare for deeper spending cuts after the 2015 general election.

Economists believe Osborne is now likely to overshoot his earlier borrowing forecasts by as much as £10bn, with many suggesting these latest figures have put the UK’s  triple-A credit rating in even greater danger.

Yesterday morning the chancellor told fellow members of the cabinet that they must do “more with less” and find ways to cut departmental budgets for the 2015-16 financial year.

“There is no flinching from the fact that very difficult decisions will have to be made,” the Prime Minister’s official spokesman explained. “There was agreement around the cabinet table that though the decisions that are going to have to be taken are difficult, they will have to be made.”

The NHS, schools and overseas aid budgets will remain ring-fenced but all other departments face additional cuts. These new budgets will be binding, regardless of who wins the next general election.

Figure from the Office for National Statistics show the deficit came in at £15.4bn for December 2012, up 3.8 per cent on the same month last year.

This brings the deficit for the financial year so far up to £106.5bn, excluding one-off transfers, a rise of 7.3 per cent on the year.

Tax revenues rose 3.6 per cent to hit £43.8bn in December.

But they were far outstripped by increases in current spending, which rose 5.4 per cent to £55.3bn.

And even though the claimant count has been rising, the social security bill only increased 3.3 per cent, showing government spending in other areas is rising more quickly.

Part of the rapid rise was caused by increasing interest payments on the government’s mounting debts – they came in at £4.4bn in the month, up 5.1 per cent on the year.

“If this trend were to continue for the remaining three months of this financial year, borrowing for the whole of financial year 2012–13 would be about £130.5bn. This is around £10bn higher than forecast by the OBR in its December,” said analysts at the Institute for Fiscal Studies.

And ING economists said the UK could be about to lose its triple-A credit rating, which might hit confidence in the government’s ability to bring down borrowing and potential increase interest costs further.

“With the US and France having been downgraded by one ratings agency in the past couple of years, another disappointing UK borrowing number and a widely expected contraction in fourth quarter GDP on Friday will intensify the threat of the UK suffering the same fate,” said the bank’s James Knightley.