A rare piece of good news for Osborne

Public sector borrowing was just £20m last month, down from £3.5bn in July 2010.

Sign Up

Get the New Statesman's Morning Call email.

After this week's terrible inflation and unemployment figures, George Osborne can take some comfort from today's impressive borrowing figures.Public sector borrowing was just £20m last month, down from £3.5bn in July 2010 and significantly lower than the City forecast of £2.5bn.

In this case, higher tax receipts, rather than lower spending, were largely responsible. VAT and corporation tax receipts were better-than-expected and the new bank levy raised £660m. Local government borrowing also fell due to unspent grants, although, as the ONS pointed out, this effect is likely to be temporary.

Borrowing since the start of the financial year now stands at £40.1bn, down from £43.1bn over the first four months of last year. But lower-than-expected growth [the OBR figure is set to downgrade its growth forecast of 1.7 per cent when it next reports in the autumn] and higher-than-expected unemployment means that Osborne is still unlikely to meet his 2011-12 borrowing target of £122bn. Samuel Tombs of Capital Economics, for instance, notes that based on current trends, Osborne is likely to overshoot his target by some £10bn. The Treasury is today crowing that the figures prove "the cuts are working" but its joy is likely to prove short-lived.

George Eaton is assistant editor of the New Statesman.