UK chancellor George Osborne came under renewed pressure this morning as the nation’s budget deficit shot up, despite his attempts to reduce it.
Official figures from the Office for National Statistics (ONS) show the deficit – the shortfall between government income and expenditure – rose to £17.9bn in the month of May compared to £15.2bn a year earlier. The figures exclude government support for the banks.
The UK economy is officially in recession following two successive quarters of contraction. The slump has led to falling revenues – income tax receipts fell 7.3% while welfare benefits, which typically rise as the economy struggles, shot up 11.7%.
The news will come as a major blow to the Treasury, which had hoped that its cuts to public spending would help ease the rate of borrowing.
“The UK budget deficit [is] going up again so far this fiscal year,” Alistair Heath, the Thatcherite editor of economics and finance newspaper City AM, said in a tweet this morning. “[This will be a] disaster for Osborne if this continues and becomes a trend.” Professional Manager warned earlier this year that the Chancellor’s deficit reduction ambitions could become a casualty of contraction in the economy.
The news means that the Treasury is unlikely to meet its target of reducing annual borrowing in this financial year to £120bn. Vicky Redwood, chief UK economist at Capital Economics, told the BBC that she expected the government to miss its target by a “significant” margin.
“The main problem remains a sharp slowdown in tax receipts,” she added. “And with the economy probably still in recession, receipts are likely to remain weak.”
But a spokesman for the Treasury told the BBC: “It is too early in the financial year to draw conclusions about the year as a whole, especially as today’s public finances data include a number of one-off factors and temporary distortions.”