Public finances: Debt worsening despite tax gain

Bumper revenues from North Sea oil companies boosted Britain's public coffers last month, but analysts still believe that the government has little hope of meeting its borrowing target for the year.

The Office for National Statistics said the Treasury had a surplus of £4.8bn last month, slightly higher than the City's expectations. Corporation tax from North Sea operators accounted for 40% of the £9.9bn tax receipts in July, more than making up for a fall in onshore revenue.

Government borrowing in the first quarter of the financial year was the highest in any quarter since records began in 1946 and analysts said July's surplus did not alter the trend. July is traditionally a surplus month in the public finances calendar due to the timing of tax receipts.

Matthew Sharratt, an economist at Bank of America, said: "The surplus is slightly bigger than expected but the key thing is that the deteriorating trend in public borrowing is stark."

The chancellor of the exchequer, Alistair Darling, forecast in the March budget that the UK would need to borrow £43bn to balance the books this year, raising debt to 38.5% of national income. Under Gordon Brown's sustainable investment rule, it should be no more than 40%. At the end of July, debt was £542.6bn - the equivalent of 37.3% of gross domestic product.

But several economists expect the final figure to be much higher. "The full-year figures are going to be significantly worse than the chancellor's forecast of £43bn," Jonathan Loynes at Capital Economics said. "Possibly £50bn or £60bn even."

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, believes that the deficit could "easily reach £50bn or more this year even before considering any possible spending overshoot (which seems quite likely in areas like debt interest and social security benefits that are less readily controllable by the Treasury)".

The shadow chancellor, George Osborne, said: "These dreadful figures show that borrowing is out of control. One test of a fair society is that we do not leave our children to pay our debts, and this fiscal irresponsibility is not just reckless, it is deeply unfair on future generations.

"Gordon Brown has failed to put aside money for a rainy day during the good years, and taxpayers will bear the price for his economic incompetence."

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