UK government borrowing dropped in May

UK government borrowing dropped in May, thanks to a rise in income tax and VAT receipts.

That's according to official figures from the Office for National Statistics (ONS), which showed that UK government borrowing fell to £10.13 billion – more than £2 billion less than the same period a year ago when the figure was at £12.35 billion. It was also the lowest borrowing figure in May for eight years reports the BBC.

The ONS says that public sector net debt, excluding public sector banks, currently stands at £1.5 trillion – 80.8 per cent of the country's gross domestic product (GDP).

In a statement, the ONS explained: "While the deficit in the financial year ending 2015 has fallen by more than a third since its peak in the financial year ending 2010, public sector debt has maintained a gradual upward trend."

Estimates from the ONS put total public sector borrowing in the financial year to March 2015 at £89.2 billion – 4.9 per cent of GDP. This figure is slightly higher than previous estimates, but £9.3 billion lower than the previous year's total.

Increase in tax revenue

The positive figures in May can be attributed, at least in part, to an increase in income generated from income tax and VAT.

Income tax receipts hit their highest level for May in four years, rising 5.3 per cent from £10.3 billion to £10.8 billion. VAT receipts rose by 5.6 percent to from £10.1 billion to £10.7 billion.

Borrowing targets

According to experts, Chancellor George Osborne is set to come in below this year's borrowing targets.

"The chancellor is currently on track to significantly undershoot his financial targets for 2015-16," said analyst Howard Archer. However, he adds that Mr Osborne will also need to answer questions about how the government will meet its financial targets in the future.

"Major questions remain ahead of the extra budget on July 8th over the new conservative government's ability to meet its ambitious fiscal targets over the longer term," Mr Archer said.