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Blow to Chancellor as borrowing hits £3bn

By Oliver Wright and David Elliott

George Osborne's attempt to cut the UK’s deficit has been dealt a blow after official figures revealed that the Government borrowed £3bn more than expected last month.

In Northern Ireland public sector finances suffered a 20% fall in corporation tax receipts from business while public spending rose by 5%, fuelled by higher benefit payments.

Corporation tax receipts in Northern Ireland have come under the spotlight in recent weeks as the costs of cutting the region’s corporation tax to 12.5%, the same as that in the Republic, are totted up.

Overall public sector net borrowing came in at £600m in July, compared with a surplus of £2.8bn in the same month last year. City's expectations had been for a surplus of £2.5bn. Public sector net debt now stands above £1tn, compared to £940bn a year ago, and represents 65.7% of the UK's GDP, up from 61.8% last year.

July is normally a strong month for tax income, but total receipts fell 0.8%, driven by the drop in corporation tax. The poor figures were compounded by a revision of net borrowing for April to June - up by £1.4bn.

It means net borrowing is £44.9bn, £9.3bn higher than a year ago.

The disappointing figures are likely to put pressure on the Chancellor to cut back on departmental spending still further.

At the weekend it emerged that civil servants in the Treasury have been privately warning colleagues across Whitehall to prepare for a fresh round of cuts following the disappointing tax receipts. These could come as soon as Mr Osborne’s autumn spending statement.

“There’s a lot of nervousness and other officials are talking to their oppos (opposite numbers) in spending departments,” said a Whitehall source.

“They are saying we haven’t got enough cash and expect a much, much harsher environment.”

A Treasury spokesman said part of the issue was with a loss of North Sea oil production.

“Tax receipts are coming in below forecast but this is mostly explained by the weakness in corporation tax, especially from North Sea oil production.”

Labour seized on the figures claiming the government economic strategy was failing and that its failure to promote growth was making the recession worse.

“This is a damning indictment of a Chancellor who promised to secure the recovery and get the deficit down,” said Rachel Reeves Shadow Treasury chief secretary.

“His failed plan has delivered the exact opposite - a double-dip recession which is leading to soaring borrowing.

“What more evidence does the government need that their plan has failed and they need to change course?

“Unless the Chancellor takes urgent action now, he will end up not only borrowing billions more to pay for economic failure but he risks causing long-term damage to our economy too.”

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