LONDON (Reuters) - British government borrowing rose sharply in December to cover a higher European Union budget bill, but the government could take some hope of meeting its full-year borrowing targets from higher tax revenues.
Deficit reduction has been the key economic policy of the Conservative-led government since it came to power in 2010. Finance minister George Osborne is keen to avoid any more slippage with a national election barely three months away.
British public borrowing increased to 13.1 billion pounds ($19.9 billion) in December from 10.3 billion pounds a year earlier, a bigger increase than analysts expected.
The deterioration was largely due to a 2.9 billion-pound charge for money owed to the EU because of a recalculation of Britain's contributions.
After Osborne disputed the bill in November, he won a deferral of payment until 2015 and a partial rebate. Accounting rules mean the full sum was still debited from December's public accounts, though.
Borrowing since the start of the tax year in April totalled 86.3 billion pounds, a fraction lower than a year earlier.
It also leaves Osborne facing a challenge to meet his latest target of cutting borrowing for 2014/15 as a whole by 6 percent to 91.3 billion pounds, or 5.1 percent of gross domestic product.
"The pace of deficit reduction remains disappointingly slow in light of the economy's recent strength," said Samuel Tombs, senior UK economist at Capital Economics.
Britain's finance ministry said its deficit reduction programme was still on track.
The deficit stood at 10.2 percent of GDP in 2009/10, just before Osborne became finance minister, and public sector net debt climbed to a record 80.9 percent of GDP in December.
While the government has met its spending cut plans, tax receipts have proven weak for most of this financial year despite strong economic growth, forcing Osborne to lower his deficit reduction ambitions last month.
December's data hinted at an improvement in revenues. Income and capital gains tax receipts rose by 3.1 percent on the year, the biggest rise for a month of December since 2010.
Stronger revenues from income tax and value-added tax led to borrowing between April and November being revised down by 2.2 billion pounds from last month's estimate.
Much will hinge on numbers for January, when annual income tax payments for the 2013/14 tax year fall due for many Britons. Many economists expect a big surplus from a tax cut which took effect in April 2013 and encouraged the deferral of bonuses into that tax year.
Britain's Office for Budget Responsibility said it expected 1.2 billion pounds of the 2.9 billion-pound EU payment to be credited back before the end of the tax year and for debt interest payments to be around 1 billion pounds lower.
Osborne has said that if the Conservatives return to government after May's election, he wants to run an outright budget surplus, something that will require significant further cuts to public spending.
The opposition Labour Party has a less ambitious goal which would allow money to be borrowed to fund long-term investment.
($1 = 0.6583 pounds)
Reporting by David Milliken; Editing by Larry King