Record August borrowing adds to budget woes

By Christina Fincher Reuters - Thursday, September 18 04:32 pm

LONDON (Reuters) - Public finances swung deeper into the red last month, leaving the government with virtually no hope of meeting its full-year borrowing forecasts, official data showed on Thursday.

The Office for National Statistics said public sector net borrowing hit 10.4 billion pounds last month, the highest in the month of August since records began in 1993.

Borrowing for the fiscal year to date is running almost 12 billion pounds higher than last year even before the full impact of the credit crunch is felt.

If the rate of the slide persists, borrowing for the full year would be 65 billion pounds, compared to 43 billion pounds forecast by Chancellor Alistair Darling in his March budget, according to the Institute for Fiscal Studies.

At 4.4 percent of national income, that would be the biggest deficit since before Labour came to power in 1997.

"Government borrowing over the first five months of the financial year was 70 percent up on last year, far bigger than the 19 percent increase implied by Alistair Darling's forecast for the year as a whole," said Carl Emmerson, deputy director at the IFS.

WORSE TO COME

The deterioration reflected both weak revenues and continued strength in public spending. These trends will be hard to reverse as a weakening economy erodes tax receipts and forces up social security spending.

The government's projections in March assumed the slowdown this year would be both shallow and short-lived. That no longer looks the case and it looks increasingly likely that the government will be forced to revise not just its forecasts but its entire budgetary rulebook.

The government said higher borrowing was needed to shore up the economy at a time of extreme global turbulence.

"The global credit crunch is affecting the UK's tax receipts from financial services and stamp duty," said Treasury Chief Secretary Yvette Cooper.

"Faced with unprecedented world shocks, it is right that we increase borrowing this year to help support the economy."

August's release included the impact of Northern Rock's travails on public sector accounts for the first time. That pushed Britain's net debt rose to 43.3 percent of gross domestic product, well above the 40 percent ceiling required by the government's fiscal rules.

The government has argued that its loan to Northern Rock is temporary and should therefore be disregarded when assessing the fiscal rules.

(Reporting by Christina Fincher; editing by John Stonestreet and Patrick Graham)

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