By David Milliken and William Schomberg
LONDON (Reuters) - Britain's public finances deteriorated again in August after a weak start to the financial year, posing a challenge for Chancellor George Osborne as next year's national election approaches.
The Office for National Statistics said public sector net borrowing, excluding state-controlled banks, totalled 11.6 billion pounds in August, up 6.1 percent from a year earlier, broadly in line with economists' expectations in a Reuters poll.
Public borrowing for the tax year to date, excluding banks, was 45.4 billion pounds, 6.2 percent higher than between April and August 2013, data showed on Tuesday.
Britain's government said in March it would aim to cut borrowing by 10 percent in the 2014/15 tax year to lower the deficit to 5.5 percent of GDP from about 6.5 percent in 2013/14.
But so far this year total borrowing has run ahead of 2013 levels. This is partly because the first few months of the 2013/14 tax year saw bumper revenues due to a Swiss tax deal, as well as from income tax paid on bonus payments that had been held over from early 2013 to take advantage of a tax cut.
Even so, economists said a big improvement would be needed this month for the government to get back on track and the chances of extra spending or tax cuts before the election in May 2015 seemed to be slipping away.
Britain's very weak pay growth helped limit annual growth in income tax receipts and social security payments to just 1.6 percent in August. In the tax year to date, income from those sources was 0.6 percent lower than a year earlier.
"We would still expect some reduction in the budget deficit for 2014/15 as a whole compared to last year, given the continued economic recovery," John Hawksworth, chief economist at accountancy firm PricewaterhouseCoopers, said.
"But the pace of deficit reduction may be slower than (Osborne) planned for back in March, leaving a larger budget deficit for the next government to deal with after the general election."
Value-added tax jumped an annual 4.6 percent in the April-August period, reflecting strong consumer demand that has helped drive Britain's economic recovery, and stamp duties - which includes taxes on property - leapt 26 percent.
The swift turnaround in the housing market has shown some signs of slowing. British banks approved the smallest number of home loans in a year during August.
DEFICIT TO THE FORE
Deficit reduction has been the focus of the Conservative-led coalition since it came to power in May 2010 when the shortfall was 11 percent of GDP, one of the highest for a major economy.
Osborne has said a re-elected Conservative government would seek to eliminate the deficit altogether before the end of the next 2015-2020 parliament.
The opposition Labour party, setting out its election agenda at an annual conference this week, stuck to its less aggressive pledge to eliminate the budget deficit in current terms - excluding investment spending - in the same period.
The August data marks the introduction of new public finance measures by the ONS.
The ONS's previous headline measure - public sector net borrowing, excluding financial sector interventions - came in at 12.5 billion pounds in August, up from 11.7 billion pounds a year earlier and above economists' 11.5 billion pound forecast.
The government's March budget goals were based on a version of PSNB excluding financial sector interventions that also strips out transfer payments between the Bank of England and the finance ministry.
Public sector net debt on the new measure - which meets new European Union guidelines - totalled 1.432 trillion pounds in August, compared with 1.301 trillion on the old measure.
The ONS did not have this measure available as a percentage of gross domestic product as major GDP revisions are due to be announced on Sept. 30.
(Writing by David Milliken and William Schomberg; Additional reporting by Andy Bruce; Editing by Ruth Pitchford)