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Government finances move back into the black

• Current 2011-12 borrowing was £32bn, a £3bn decrease on 2010/11
• Business tax and bank levy boost July figures
• Budget deficit still expected to hit £132bn for the year

George Osborne received some unexpected good news as it emerged that Britain’s public finances moved into the black last month despite the sluggishness of the economy.

Higher corporation tax receipts and the government’s levy on banks resulted in a surplus of almost £2bn in July, beating City estimates that the Treasury’s net borrowing would stand at £500m.

The better-than-expected figure meant that in the first four months of the current 2011-12 financial year net borrowing was just over £32bn, a £3bn decrease on the same period a year ago.

The chancellor has announced tax increases and spending cuts in order to reduce Britain’s deficit from its peak of £156bn hit in 2009-10.

July is one of the four months in the year for payment of corporation tax, and the Office for National Statistics said higher receipts from business and the new bank levy had boosted the July figures. Local government borrowing was also lower.

Britain’s independent Office for Budget Responsibility, set up by Osborne after the 2010 election, has predicted that public borrowing excluding government interventions to help UK banks will total £122bn in 2011-12.

But despite last month’s surplus, City analysts doubt that the government will be able to achieve its target given the flat lining of growth since last Autumn.

“July’s public finance figures suggest that the trend in borrowing has improved a bit, but not enough to leave the government on track to hit the fiscal forecasts for the year as a whole”, said Samuel Tombs of Capital Economics.

He added that on current trends Osborne was likely to miss the OBR’s £122bn forecast by around £10bn.

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