VAT increase helps to pull back public borrowing

Public sector borrowing dropped back last month, aided in part by the additional tax revenues generated by the rise in VAT.

According to the Office for National Statistics (ONS), total government borrowing for May stood at £17.4 billion.

The figure represents a 6 per cent improvement on May 2010 and comes after a surprising 5 per cent leap in public debt in the previous month.

The fall in borrowing was helped by a 8.2 per cent increase in the tax take, which rose to £38 billion.

Playing its part in the rise in tax revenue was the impact of the new 20 per cent VAT rate. VAT receipts were reported as being up by 17 per cent.

However, analysts point out that if tax revenues are to continue to help reduce the budget deficit, the economy will need to grow at a more sustained rate.