Financial News

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Public sector net borrowing reached £19.9bn in May, compared with £12.2bn a year earlier, new figures have revealed.

Public sector net borrowing now stands at £30.5bn for the two months of the financial year so far - more than double the level seen at the same stage 12 months earlier.

Chancellor Alistair Darling is predicting record borrowing of £175bn this year as tax revenues such as VAT and corporation tax are hit by the recession, and the Government has to spend more on unemployment benefit.

Even though May is traditionally a weaker month for the public finances, the borrowing seen over the month surpasses March's £19bn and is the biggest figure since the Office for National Statistics' (ONS) records began in 1993.

The country's overall net debt now stands at a £774.8bn.

That is almost £150bn higher than a year ago and equivalent to 54.7% of the UK's
entire annual economic output - the biggest proportion for more than 30 years.

The Government is hoping that the massive amount spent on stimulating the economy will lead to a quick recovery.

That means public borrowing will be scaled back.

At the moment Government coffers are being hit by a reduce income from income and corporation taxes while the outlay on unemployment benefit is rising.

Corporation tax takings last month were down 27%, VAT revenues were down 19% and income tax takings fell almost 11% on a year earlier.

Government spending on social benefits rose 8%, or £1bn, to £13.5bn.

Figures yesterday showed that unemployment rose to a 12-year high of 2.26 million and it is expected to increase further to three million.

Yesterday, the Governor of the Bank of England, Mervyn King, said the Government must produce a plan to repay national debt.

The UK's most senior trade union leader, Brendan Barber, told Sky News there would be cuts in public spending, whoever wins the next election.