BRITAIN sank deeper than expected into the red last month, indicating that Gordon Brown’s latest borrowing forecasts may already be proving too optimistic.
The public finances showed that the Government borrowed an extra £6.5 billion in December, well ahead of expectations and up from £6.2 billion the previous December.
Much of the rise was caused by increased investment. As a result, borrowing on the current budget, which strips out investment, was slightly lower, at £4 billion compared with £4.8 billion in December 2004.
Over the year so far the Chancellor has run up a deficit of £23.6 billion on the current budget and £38.9 billion in overall net borrowing. All eyes will be on January’s figures, which usually show a surplus because of the timing of tax revenues.
Analysts said that Mr Brown was unlikely to hit December’s Pre-Budget Report targets for the two deficit measures, of £10.4 billion on the current account and total net borrowing of £36.9 billion, by the end of the financial year.
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John Hawksworth, of PricewaterhouseCoopers, said the data showed “slightly less favourable trends” and forecast that the Chancellor would overshoot his targets by about £2 billion this year. He added: “Some combination of tax increases and/or public spending growth below trend GDP growth will be needed to put the public finances on a sound footing in the longer term.”
The Conservatives claimed that the Chancellor was now “in deficit on the Golden Rule”, which requires that the current budget be balanced over the economic cycle. Their calculation was based on the cycle beginning in 1997 and ending this year. The Treasury calculated last month that the cycle would end in 2009.
An alternative, more volatile, measure of the public finances rose to its highest ever. The public sector net cash requirement last month was £14.9 billion, caused by the timing of interest payments on bonds.