UK government debt now at 56.6% of output

Earlier bank bail-outs of Northern Rock and Bradford & Bingley have added to the dismal debt figure and it is set to rise further still when the cost of part-nationalising Lloyds Banking Group and Royal Bank of Scotland is calculated.

Today's data showed public sector net borrowing was £5.5bn (€6.4bn) higher last month than a year earlier, hitting a record high for the month of June.

The borrowing figure came in better than expected by economists, but failed to ease fears over the state of the UK's battered public finances.

British Chancellor Alistair Darling predicts net borrowing over the financial year will hit £175bn (€202.3bn) as surging government spending offsets dwindling tax receipts amid the recession.

The ONS figures revealed that while total UK government outlay rose by 11% year-on-year to £49bn (€56.6bn) in June, total tax take dropped 5.7% to £35.5bn (€41bn).

Experts said today's statistics confirmed the need for drastic spending cuts and tax hikes to get UK finances back on track.

Vicky Redwood of Capital Economics said: "June's UK public finances figures are a touch better than expected, but do absolutely nothing to alter the big picture that they are in a dreadful state."

"Overall, the need for a significant fiscal consolidation remains painfully clear," she added.

ONS revisions saw borrowing figures for April and May lowered to £18.6bn (€21.5bn) and £9.6bn (€11.1bn) respectively, which added to hopes that full-year borrowing would not exceed the Chancellor's forecast.

But the British government was warned it must not sit back.

"Whether or not the Chancellor does achieve his target this year, it does not alter the fact that extended, further major fiscal tightening measures will have to be introduced to get the public finances back to a sustainable state over the long term," said IHS Global Insight chief economist Howard Archer.

The ONS data showed the impact of recession on tax receipts, with corporation tax takings plunging by 14.1%, VAT by 15.9% and income tax by 3.9%.

The British government is spending far more than it is taking in as it battles against recession, with outlay on areas such as unemployment payouts sending social benefit spend up 9.7% to £13.3bn (€15.4bn).

Figures yesterday showed the UK government suffered its steepest decline in tax revenues in the 2008/09 financial year since the 1920s - down by £32bn (€37bn).

The Treasury was shown to have overspent by £24bn (€27.7bn) on last autumn's banking rescues and its accounts were rejected by official auditors at the National Audit Office over insurance granted to Royal Bank of Scotland and Lloyds Banking Group.

Today's ONS figures revealed that the hit from nationalising Northern Rock and Bradford & Bingley alone added £118bn (€136.4bn) to public sector net debt.

With financial intervention measures stripped out, total net debt stands at £657.5bn (€759.5bn) or 46.6% of GDP, although this does not yet include the impact of RBS and Lloyds bail outs.

A spokesman for British Prime Minister Gordon Brown said: "Obviously our economy, like all economies, has been affected by the global recession.

"We got hit particularly because of the large size of our financial sector and the contribution that makes to the finances.

"But we went into this global recession with lower levels of net debt than many other countries and we will still have lower net debt than the US, Germany and the eurozone as a whole."

Bank of England Governor Mervyn King recently highlighted concerns over the nation's finances, branding Government's borrowing levels "extraordinary".

Think tank, the Centre for Business and Economic Research (CEBR), is forecasting that Government spending will need to be slashed by £80bn (€92.4bn), with tax hikes of £20bn (€23.1bn) introduced to sort out the public purse.