Surprise rise in borrowing figures

Confirmation that the UK has slipped back into recession followed figures showing government borrowing rose by more than expected in March.

Total borrowing fell by nearly £11 billion over the last financial year, but the figure for March was £18.2 billion, up slightly on a year ago and above City forecasts of £16 billion, the Office for National Statistics (ONS) said.

However the Government still met the Budget day forecast, announced by its tax and spending watchdog, for borrowing of £126 billion in the year to the end of March.

This was down from £136.8 billion the previous year, after revisions in previous months.

Earlier in the financial year, the Office for Budget Responsibility predicted the borrowing figure would fall to £122 billion but it effectively moved the goalposts after the economy worsened.

The reduction in borrowing over the year was made with the help of tax increases, such as the hike in VAT to 20% from 17.5% and cuts in Government spending.

March's borrowing figure, which showed the biggest rise since November 2010, helped push the Government's net debt back over the £1 trillion mark at 66% of gross domestic product (GDP).

A Treasury spokesman said: "Today's (Tuesday) data shows that the forecast for 2011/12 is on track, with public borrowing down by £11 billion compared to the previous year.

"This shows that the Government's plan to reduce the budget deficit is working."

The rise in March's borrowing figure was driven by a fall of corporation tax from £1.8 billion last year to £1.2 billion, while VAT was down 1% to £9.4 billion.

But the Government's borrowing figures over the previous 11 months were revised downwards by £2.2 billion.

The ONS figures showed that central Government spending, excluding payments for benefits and interest, fell slightly for the first time since 1955, to £388.4 billion.

But economists say the Government will have a tougher task meeting forecasts to reduce borrowing to £120 billion in the current financial year as the economy struggles and unemployment rises, which will hurt its tax revenues and increase benefits payments.

Samuel Tombs, an economist at Capital Economics, said: "March's public finance figures suggest that the trend in the UK's fiscal position is continuing to worsen.

"Weaker-than-expected growth in tax receipts, reflecting the slow pace of economic recovery, has been offset by lower-than-anticipated growth in current expenditure for the year as a whole.

"But with the economic recovery continuing to stutter, we think it will become increasingly difficult for the Government to meet its ambitious deficit reduction plans in the coming fiscal year."

Labour Treasury spokeswoman Rachel Reeves said: "These figures show that last year George Osborne borrowed £9 billion more than he planned to at the time of his spending review.

"The Government is now forecast to borrow an extra £150 billion because of the higher unemployment and slow growth their failed economic policies have delivered.

"There do need to be tough decisions on tax, spending and pay. But by choking off the recovery, pushing up unemployment and so borrowing billions more to pay for economic failure, cutting spending and raising taxes too far and too fast has backfired. And this Government's pledge to balance the books by 2015 is now in tatters."