Public sector borrowing falls to £6.5bn

Chancellor George Osborne's deficit reduction plans were lifted today after it emerged borrowing fell by more than expected in October.

Public sector borrowing, excluding financial interventions such as bank bail-outs, fell to £6.5 billion, which is £1.2 billion lower than the previous year, and below the City's expectations of £6.8 billion.

Borrowing between April and September was also revised down by £1.7 billion.

The figures come a week before the Chancellor's autumn statement, when he is expected to announce a package of measures to help boost the UK's ailing economy amid criticism that his austerity measures have choked off the recovery.

On the same day, the Office for Budget Responsibility will update its forecasts for Government borrowing, with many economists expecting the body to admit that Mr Osborne will fail to eradicate the structural deficit by 2014/15 as previously planned.

Today's figures mean Government borrowing in the year since April stands at £68.3 billion, which is still in sight of its target of £122 billion in the financial year.

But there are increasing fears that the worsening state of the economy will scupper the deficit reduction plans by increasing the Government's benefits bill and lowering its tax income.

Prime Minister David Cameron admitted yesterday that controlling Britain's debt was "proving harder than anyone envisaged".

James Knightley, an economist at ING Bank, said the finances were better than expected and the Government's deficit reduction plan for the current financial year was "still achievable".

But he added: "The Government has been dropping clear hints that this borrowing forecast number is likely to be revised upwards next week because of much weaker than expected GDP growth.

"This suggests that the improvement in taxation revenues may moderate and that Government spending may not slow as much as hoped due to higher unemployment."

Fears are growing that the UK's economy will slip back into recession amid the squeeze in consumer spending, while the UK's exports markets are being hit by the eurozone debt crisis.

The better-than-expected figures in October were mainly driven by higher tax revenues, helped by the 20% rate of VAT.

The Government's net debt has risen to £966.6 billion, which is 62% of GDP, and is expected to break through the £1 trillion barrier in the coming months.

Mr Osborne briefed his ministerial colleagues on the borrowing figures at the regular weekly meeting of Cabinet at 10 Downing Street this morning.

Mr Cameron's official spokesman told reporters: "The message was that the figures this morning show that we are making progress in our plans to cut the deficit and that the difficult decisions we have taken mean that the UK is seen as a relative safe haven by the markets, but that we are not immune from the debt storm."

The spokesman added: "There was strong agreement that the Government needed to be completely committed to delivering on its plans firstly to deal with our debts - because that is fundamental if we want to keep interest rates low and protect the UK from the debt storm - and secondly to build the foundations for growth by pressing ahead with the necessary structural reforms to boost competitiveness and rebalance our economy in the medium term."

Mr Osborne made no forecasts at this morning's meeting of whether he will meet his fiscal mandate of eliminating the structural deficit by 2015/16 or his target of reaching that point in 2014/15, said the spokesman.

The Chancellor's prognosis is expected in his autumn statement on November 29, and he will brief Cabinet colleagues a day earlier in next week's Cabinet.

PA