Strong income tax receipts pushed British government borrowing to its lowest May reading since 2007, adding to signs that revenue growth could play a major role in debt-reduction plans being drafted by finance minister George Osborne.

The budget deficit fell to £10.1 billion ($16.05 billion) from £12.4 billion a year earlier, a smaller gap than economists had forecast.

After an unexpected outright election victory last month for the Conservative party to which Osborne belongs, he has said he will use a budget statement on July 8 to set out plans to commit future governments to run budget surpluses during normal economic times.

That is something with little precedent in post-war Britain, and it could help reduce public debt faster after it reached a record £1.5 trillion in May, more than 80 per cent of gross domestic product.

Osborne says debt needs to fall substantially as a share of GDP before another financial crisis hits Britain, though economists at the International Monetary Fund and OECD have questioned how fast this should be done.

Yesterday's borrowing data offers the Conservatives some reassurance that after five years when spending cuts drove reductions in the budget deficit, higher tax revenues will play a greater role in future years.

Income tax revenue rose more than 5pc to its highest since May 2011, and combined income tax and social security receipts are at a record high. Record employment levels and rising wages should ensure further growth.

Even if tax revenues improve, big cuts in spending on welfare and government services are still to come. Revised statistics office figures showed the deficit stood at 4.9 per cent of GDP in the year to March, higher than most developed countries.

Osborne has asked government departments to find extra spending cuts for the current tax year, and many economists expect him to use July's budget statement to smooth the path of cuts set out in March.

'Instead of sticking to the March budget profile over the next three years, the chancellor could 'ease the squeeze' on expenditure by averaging out the next four years' figures,' Investec economist Philip Shaw said.

This would reduce annual cuts to departments' spending to 1.8 per cent rather than 3.7 per cent, Shaw said.-Reuters