Recession dents Osborne's deficit reduction plan

By Alex Stevenson

The coalition's deficit reduction strategy is being questioned this morning after figures showed more government borrowing than expected n May.

Rising benefits spending and falling tax receipts forced public sector net borrowing up to £17.9 billion, much higher than the £15.2 billion in the same month last year.

Figures from the Office for National Statistics confirmed current expenditure had increased by 7.9%, suggesting ministers are struggling to achieve cuts in spending judged critical to restoring Britain's economic credibility.

"These figures are another nail in the coffin of David Cameron and George Osborne's failed economic plan," shadow chief secretary to the Treasury Rachel Reeves commented.

"As we consistently warned, if you choke off the recovery and push the economy into recession, the government ends up having to borrowing more not less."

Public sector net debt reached 65% of GDP, up from 61.3% at the end of May 2011.

Commentators have observed that the deficit reduction strategy has been struggling for a while. Last month the public finances were helped by a windfall from the Royal Mail pension fund which resulted in a record surplus of £16.5 billion.

Howard Archer, chief UK economist at IHS Global Insight, said the chancellor faced a "major battle" to meet his fiscal target for 2012/13.

If the trend seen in the financially year's first two months continues public sector net borrowing would reach £148 billion - significantly above his £120 billion target.

Ms Reeves added: "If we're to succeed in getting the deficit down we need tough decisions on tax, spending and pay but we also need a plan for jobs and growth.

"Unless the chancellor finally changes course and adopts a more balanced plan he will end up borrowing billions more to pay for economic failure and cause long-term damage to our economy too."