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George Osborne
George Osborne will deliver his autumn statement on 5 December. Photograph: Andrew Milligan/PA
George Osborne will deliver his autumn statement on 5 December. Photograph: Andrew Milligan/PA

UK government monthly borrowing rises more than expected to £8.6bn

This article is more than 11 years old
Fall in corporation tax receipts hits George Osborne's chances of meeting his deficit reduction targets for this year

George Osborne's chances of meeting his deficit reduction targets this year took another blow on Wednesday when it emerged that the government had borrowed much more than expected last month.

Corporation tax receipts slumped by almost 10% in October, which normally sees a heavy inflow, mainly due to a sharp drop in oil and gas receipts after lower-than-expected production. The VAT take was also down, while central government spending rose by £4.2bn, partly due to a change in timing of grants to local authorities.

This meant public sector net borrowing excluding the effects of banking bailouts came in at £8.6bn in October, compared with £5.9bn a year ago. City economists had expected a shortfall of £6bn.

Chris Williamson, chief economist at Markit, said the main problem the government is facing is the anaemic pace of economic growth. The Office for Budget Responsibility (OBR) was expecting the economy to grow by 0.8% in 2012, and expand by 2% in 2013. "Zero growth now looks a more likely outcome for this year, and a return to robust growth next year is starting to look overly optimistic," he said.

A Treasury spokesman said: "The economy is healing, but it still faces many challenges. These numbers illustrate that, but also show the government's plans to bring spending under control are on track for the year." He added that payroll taxes and national insurance payments were holding up well.

The OBR concurred on the latter point but noted that corporation tax receipts were likely to fall "considerably short" of its March forecast, and growth in VAT and excise duties so far this year was also much weaker than expected. "While it looks likely that receipts growth will fall short of our March forecast, much will depend on the performance of the real economy and inflation over the remainder of the fiscal year," the independent body said.

The borrowing figures, released by the Office for National Statistics (ONS), are the last before the chancellor presents his autumn statement on 5 December. Osborne's goal is to reduce government borrowing to £120bn this financial year from last year's revised £121.4bn.

In the financial year so far, borrowing excluding the one-off effects from the transfer of Royal Mail pension assets came in at £73.3bn, £5bn higher than at this stage last year.

Vicky Redwood, chief UK economist at Capital Economics, said: "If the OBR assumes that this trend continues, it will have to revise up its forecast for this year from £120bn to £130bn. Even if the OBR assumes that the trend improves a bit, it will still be pretty touch and go whether the chancellor will be expected to meet his fiscal rules without increasing his austerity measures further."

The public finances will benefit, however, from the interest payments the Bank of England has received on the £375bn of gilts bought since the start of its quantitative easing programme in early 2009. They will be used to pay down the national debt by £35bn over the next 18 months.

JP Morgan Chase economist Allan Monks believes this will enable the chancellor to claim his borrowing target for this fiscal year will now be met – even though the ONS has yet to decide whether it is appropriate for the interest payments to be included in the deficit measure.

But this won't alter the picture of a flatlining economy, said Rachel Reeves, the shadow chief secretary to the Treasury. "Smoke and mirrors will fool nobody. George Osborne is borrowing billions more simply to pay for the cost of his economic failure. Most of all we need urgent action from this government to create the jobs and growth that are vital to get the deficit down."

More on this story

More on this story

  • George Osborne on course to miss borrowing targets by £13bn, say experts

  • Deficit, national debt and government borrowing - how has it changed since 1946?

  • Government borrowing: what the economists say

  • Disappointing public borrowing figures are headache for George Osborne

  • Bank of England split on QE

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