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British debt £10bn higher than expected

(London) Britain’s debt mountain was £10.7 billion higher than expected in the last financial year as it rose to more than three-quarters of gross domestic product (GDP), despite a fall in annual borrowing. Underlying public sector debt was £1,268.7 billion for the year to the end of March, ahead of the £1,258 billion forecast last month by the Office for Budget Responsibility (OBR), as central government receipts were lower than the OBR expected.

It meant that the sum owed by the public purse rose more steeply than predicted to 75.8% of GDP, compared to the 74.5% OBR forecast.

Monthly figures were more heartening for George Osborne, as they showed the lowest level of public sector borrowing in March for 10 years, helping the Chancellor narrowly to undershoot the OBR’s forecast on the deficit.

Borrowing excluding the distorting effects of bank bail-outs was £6.7 billion, better than expected and £4.7 billion lower than the same month last year. It was the lowest March figure since 2004.

It helped the annual deficit fall to £107.7 billion for 2013/14, against the most recent OBR forecast of £107.8 billion and much better than the £120 billion predicted at the time of last year’s Budget. The deficit for 2012/13 was £115.1 billion.

In March, central government receipts were £49.8 billion, 5.7% or about £2.7 billion higher than the same month last year, according to the figures from the Office for National Statistics (ONS).

This included £600 million more from VAT and £1 billion more from income tax, as well as £300 million more from stamp duties.

The latter tax, bolstered by an improving housing market, raked in £12.6 billion over the course of the financial year, £3.4 billion or 37.2% higher than in the previous 12 months.

Whitehall spending for March was £700 million lower than last year. For the financial year it was £640.2 billion – £9.1 billion, or 1.4%, higher than in 2012/13.

The overall total UK debt – including bail-outs – was £2,216.8 billion, or 132.4% of GDP. This has been falling from 151.7% at the end of the 2009/10 financial year.

John Hawksworth, chief economist at PwC, said despite the fall in borrowing, the annual deficit remained the second highest as a share of GDP of any of the major G7 economies – exceeded only by Japan.

Meanwhile, the debt level of more than 75% compared to below 40% before the financial crisis.

“Overall, the Government’s fiscal plans remain on track, but there is no room for complacency on the public finances,” he said.

Samuel Tombs said strong monthly growth in tax receipts “reflect the recent strengthening of the economic recovery”.

He added: “Looking ahead, we remain cautiously optimistic on the potential for stronger GDP growth than the OBR expects to eliminate the deficit more quickly than the official plans anticipate.”

Howard Archer, chief European and UK economist at IHS Global Insight, said the fact that the Chancellor met the annual borrowing target for the financial year provided a “psychological boost for the coalition”.

“Nevertheless, a deficit of £107.7 billion in 2013/14 highlights the fact that there is still an awfully long way to go in getting the public finances into decent shape,” he added.

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