Surplus boost for borrowing

Hopes the Government will hit this year's borrowing forecasts were boosted today after figures revealed it enjoyed its highest surplus for four years in January.

The Office for National Statistics said the Government recorded a net surplus of £7.8 billion excluding interventions such as bank bailouts, up £2.5 billion on the previous year and its biggest figure since January 2008.

January is traditionally a bumper month for tax returns, which was helped by its bank levy, while expenditure was brought down by the Government's ongoing austerity measures.

In a further boost to Chancellor George Osborne, net borrowing in the previous nine months of the year was revised down by £2.1 billion to £93.5 billion after local Government spending was lower than previously thought.

The better than expected figures will boost hopes the Government will beat targets set by the Office for Budget Responsibility to reduce its borrowing to £127 billion this financial year.

January's surplus helped push the Government's underlying net debt back below the £1 trillion mark, to £988.7 billion. But this figure is expected to return to fresh highs in the coming months.

Net debt is still 63% of GDP, and is up from £869.1 billion a year ago.

A Treasury spokesman said: “Our credible deficit plan is working and bringing Government borrowing down - so far this year it is £16 billion lower than in the same period last year.

“It is the deficit plan, and its successful implementation, that is keeping interest rates at record lows for families and businesses and helping to support the recovery.”

January's figures are key because they are the last to be revealed before the Budget, which will be published by the Chancellor on March 21 and will give a final chance to judge whether the Government is on track to reduce the annual deficit.

Economists fear that the Government will find it harder to meet its forecast from the Office for Budget Responsibility (OBR) in coming months as the UK's economy teeters on the brink of recession and it faces bigger benefits bills amid rising unemployment.

Credit rating agency Moody's recently put the UK on negative outlook, which means it is more in danger of losing its cherished AAA rating, as slowing growth due to public sector cuts make it harder to bring its deficit under control.

Vicky Redwood, chief UK economist at Capital Economics, said borrowing for 2011/12 could come in as low as £117 billion, £10 billion less than the OBR's forecast.

She said: “Together with the recent pick-up in the economic data, this might help the Chancellor to claim at next month's Budget that his Plan A is still working.

“We still think that borrowing will be much harder to pull down further ahead once economic growth slows - potentially leading to the loss of the UK's AAA rating.

“But for now, the Chancellor is likely to stick with his austerity plans.”

PA