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Higher than expected public sector net borrowing

Net borrowing in June reached £14.5bn according to figures just published by the ONS. This is slightly lower than the £14.7bn recorded in June 2009 but the markets had been expecting a figure around the £13bn mark. This is partly because tax revenues had been performing well in the previous couple of months. However, the Institute of Fiscal Studies has told the BBC that there was a surprise fall of 1.8%, compared with June last year, in revenues from income tax, capital gains tax and national insurance taken together.

But, the Institute expects revenues to resume their upward path for the rest of the year, partly due to higher fuel duties which will be coming in. There is also the prospect that VAT revenues may rise as consumers bring forward purchases before the rise in VAT to 20% next January. The government is forecasting net borrowing of £149bn for 2010/11.

The recent changes in the cumulative public sector current budget can be seen in the graphic below.

Graphs showing cumulative public sector finance and net debt. Source: ONS

Public sector net debt, expressed as a percentage of GDP was 63.9% at the end of June 2010 compared with 57.3% at the end of June 2009. This gave a total for net debt of £926.9bn compared with £797.5bn the previous year.

However, when financial interventions are excluded, public sector net debt falls to 56.1% of GDP in June compared with 47.7% of GDP at the end of June last year. When the banking sector is sufficiently stabilised we would expect the government to sell off its holdings and hopefully restore the net debt ratio to this lower level.

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Posted in government borrowing, Public Finances, taxation

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