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Budget in disarray as UK dives deeper into the red
Hugo Duncan19.03.09
The Chancellor was today given a splitting headache over the Budget as recession plunged Britain deeper into the red.
Official figures showed a shocking deterioration in public finances and left borrowing forecasts by Alistair Darling in disarray. City experts warned the Government could now have to borrow £460 billion over just three years — four times more than expected a year ago and almost £160 billion more than forecast in November.
“The public finances are continuing to deteriorate at an alarming rate,” said Peter Spencer, chief economic adviser to the Ernst & Young Item Club. “The Chancellor will certainly overshoot the borrowing target for the current financial year, and it will take much longer than he expects to correct the massive deficit being racked up.”
Public sector net borrowing hit £9 billion last month, more than eight times the £1.1 billion deficit in February last year. It took borrowing in the 11 months of the financial year so far to a record £75.2 billion, more than three times higher than the £23 billion at the same point in 2008.
The deterioration was driven by a collapse in tax receipts, which have been hit by declining corporate profitability, reduced bonus payments, the emergency VAT cut and the housing crash. At the same time, sharply rising unemployment has resulted in higher benefit claims. Figures yesterday showed unemployed above two million for the first time since New Labour came to power in 1997 and the biggest increase in dole queues since 1971.
The unprecedented surge in borrowing means the Chancellor has no chance of hitting the targets he set in the Pre-Budget Report in November when he forecast borrowing of £78 billion this year, £118 billion next year and £105 billion the year after.
Capital Economics today said this was wildly optimistic and predicted borrowing of £90 billion this year, £170 billion the year after and £200 billion in 2010-11. Experts warned the spiralling debt levels could damage Britain's international standing and its credit rating, making it difficult for the Government to raise funds.
Darling will also have to downgrade his growth forecasts in the Budget next month, having predicted contraction of 1% this year and growth of 1.75% next year. The International Monetary Fund this week forecast a decline of 3.8% this year and 0.2% next.
The Institute for Fiscal Studies today warned Britain faces painful public spending cuts and tax rises to balance the books once the recession is over.
“The biggest task for whoever is unfortunate enough to win the next election will be to mop up the gallons of red ink spilt over the Government finances,” said IFS director Robert Chote.
Net debt rose to £717.3 billion last month, a record 49% of gross domestic product, up from 42.3% in February last year and 34.9% in February 2007 before the credit crunch.
Liberal Democrat Treasury spokesman Vince Cable said: “We will inevitably see the public finances deteriorate further as the recession continues to bite. It is clear that the Government's temporary VAT cut has done nothing to stimulate the economy, while pushing the public finances further into the red.With the national debt rising month by month, it is inevitable that a price will have to be paid. Real discipline in public spending will be needed in future years.”
Reader views (16)
PM claimed to get us out of current recession by boosting spending on the high streets. But workers are afraid to spend due to fear of redundancies and salary cuts. Savers can not spend unless they use up their capital.
In any case, the state we are in now is due to his so called prudence of spend......spend in the past.
Now,Corporate earnings are down, benefits payments for the unemployed are up, how can any businessman balance the books?
Print more money and let the Pound devalue and perhaps this is the solution!!! With pound devalued, foreign buyers will come in to snap up our properties and sustain their devalued prices, at least mortgage lenders will not have an endless list of repossed properties!! Otherwise, these repossed properties will depress the market for ages -- more toxic assets than UK national wealth!
- H Kitty, Northwood, Middx
M.O'Brien. You must work in a bank. You cant add up. By your calculation everyone in the UK would get £1 to spend. If you really meant £1m each, then you are looking at 100 trillion pounds to fund your wheeze. ie 100,000,000 * 1,000,000 = 100,000,000,000,000
- Andyr, St Ives, Cambs
Well there you have it. Cameron just has declared he will deal with government spending in 2010 by ‘attending to’ tax credits: for low paid workers’ working tax credit; for families’ with children child tax credit, and for poor pensioners’ pension credit. Nothing different there then. Back to the future!
- Barrie, essex UK
I agree with Malcolm, London.
Keith Price must either be an estate agent, a car sales man, or Gordon Brown's butler sent out to trim the green shoots for growing too fast....Cuckoo Land no doubt...
- Chicken Little, London
Wasn't it Brown who said that he'd get us out of this mess by spending massive amounts on the public sector in order to kick start the flow of money.....and the conservatives replied by stating the obvious that taxes would naturally have to increase to cover the 'spend your way out of trouble' plan of Labour...Now Gordon and his Darling will be without the money....what now Gordon...increased taxes on those already struggling to make it through this mess...
- Chicken Little, London
I reckon you could sack 30% of civil servants and don't affect front line services.
- Ian Bilbertson, Newcastle
Wow only £160 billion more than forcast a few months ago so if we at least double this figure we may be somewhere nearer the true amount, pity help us with this Gov.
- Mike, London England
Keith Price from Luton - I hope your comment is meant sarcastically?? If not then you must be living in the same cloud cuckoo land inhabited by Gordon Brown and alistair Darling - along with those other Labour Ministers who keep seeing non-existent "green shoots" of recovery!!
- Malcolm, London
if the government had given every man, women and child £1 million pounds and i don't know the exact population of the
uk, but for the sake of argument call it 100 million.
then they could each save it, blow it in the shops, or pay off their mortgage. whatever, the economy would have been stimulated, toxic debt eliminated, and a substantial wad put into savings schemes.
thus for a mere 100 million , not the trillions the banks have gobbled up to no result the economy could have been saved.
an argument against this is that the population would have been robbed of the incentive and motivation to work,
perhaps, but there might have been light at the end of the tunnel as opposed to the awful black that seems likely to haunt us for ,perhaps a generation.
but then, i'm just a naive amateur who doesn't know fiscal from factual, or hedge funds from futures.
- M.O'Brien, london.uk
Only the BBC still calls him the Prudent Chancellor now - innumerate idiots. The end of boom and bust, the golden fiscal rules - what a disaster. Remember "things can only get better" - well at least they finally delivered on something.
- Farqs, London
A simple hiring freeze in the public sector would cut headcount by the ongoing staff turnover rate. Last I heard that rate was in excess of 5%. Easy, not redundancies just freeze it. I bet the attrition rate is even higher, more like 10%, that would certainly cut our public sector bills fast! It would also make everyone realise just how littler the public sector actually does for the money spent on it!
- James Macleod Ritchie, Oyster Bay Cove
But the budget deficit isn't the point, is it? It is the positive stimulus to the UK economy which is already beginning to bear fruit in the newly resurgent housing market and in the retail sector that tells the truth about our country's econmomic health. Well done Gordon brown
- Keith Price, Luton, England
Every Labour Government bankrupts the country in the end.
- Ian Gilbertson, Newcastle
When girls joke about their credit card limits being treated as a target ... that's a JOKE. Trouble is ... no-one's ever explained it to Darling, who seriously thinks he has carte blanche to spend on what he likes !
- Marianne, SW France
Hurah for Callaghan, sorry I mean Brown, he'll save the country and won't run it into the ground until bankrupt.
- Bob, Cheam
Crikey - at this rate they may have to think about having to make cuts in the public sector where their have been negligible job cuts coupled with a 3.7% pay rise on average this year. Anyone would think that they don't want to do it because it would cost votes for Labour in next year's election but surely that would too cynical a view wouldn't it??
- David B, Manchester
