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Government borrowing finishes year on target

Government borrowing in March, the final month of the financial year, came in at £18.2bn, according to the measure which ignores the temporary effects of financial interventions which include bank bail-outs. Many analysts thought the figure would have been lower, but it was offset by a revised figure for February borrowing which was slashed by £3bn.

Public sector net borrowing is right on target

The Office for Budget Responsibility had forecast a borrowing figure of £126bn, and the final result was £125.97bn. So the government hit their target. This result means that they reduced borrowing over the past 12 months by nearly £11bn, as total borrowing in 2010/11 had reached £136.8bn.

As recently as 2001/02 public sector net borrowing had stood at only 0.08% of GDP, but had risen to a massive 11.15% in 2009/10. However, over the last two years this has been brought down to 9.27% in 2010/11 and has now reached 8.3% in 2011/12.

Whilst this is good news, it is as well to remember that although this percentage figure is reducing, the total for our outstanding public sector net debt continues to rise. This climbed to £1.02 trillion in the year to March, which is equivalent to 66% of GDP. In 2001/02 this figure was as low as 29.7%.

The government was able to achieve its target this year through some tax increases, including VAT going up from 17.5% to 20%, coupled with some fairly savage spending cuts.

Will they be able to continue to reduce borrowings as planned? It will be interesting to see the last quarter growth figures when they are published tomorrow to see whether there has been any positive growth at all. Most economists think this figure will just be into positive territory and we will avoid the recession label, of two consecutive quarters of negative growth.

But with some estimates suggesting that unemployment may peak at 3 million, the subsequent loss of tax revenues and the increase in welfare payments, may well undermine government borrowing plans for the coming year. We desperately need a faster rate of growth, but with large firms holding on to their cash, and the banks reluctant to lend to smaller companies, coupled with the uncertainty within the eurozone, this is just not likely to happen in the short-term.

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Posted in government borrowing, Public Finances

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