Morning:
8°c
Standard’s Budget 2009 reality check
24 Apr 2009Gross domestic product
The shocking deterioration in the economy dealt a devastating blow to the Chancellor's hopes of a rapid climb out of recession.
In the Budget on Wednesday, Alistair Darling predicted a slump of 3.5 per cent this year followed by growth of 1.25 per cent in 2010 and 3.5 per cent in 2011.
But the fall in output of 1.9 per cent in the first three months of this year alone puts the economy on course to contract by more than four per cent this year, possibly as much as 4.5 per cent.
A recovery before Christmas — as predicted by the Chancellor on Wednesday — now looks highly unlikely. Economists warned GDP could shrink by another one per cent next year.
Tax and spending
Tax receipts will be lower than the Chancellor hoped for as a result of the deepening recession.
The Treasury said in the Budget that it would raise £496.1 billion in tax this year, with nearly half coming from income tax and national insurance.
But today's figure suggests tax receipts could come in £10 billion lower as a result of rising unemployment, falling corporate profits and continued problems in the housing market stemming from the slump.
At the same time, spending will have to rise by £5 billion to £10 billion to cover dole bills, other benefit payments, and projects to bolster the economy.
Borrowing
The Chancellor outlined plans to borrow a record £175 billion this year, £173 billion next year and £140 billion the year after. That is £391 billion more than expected a year ago.
But the numbers in the Budget already look out of date. If the economy shrinks by four per cent to 4.5 per cent this year, as opposed to the 3.5 per cent fall expected by the Treasury, borrowing could hit £190 billion.
A one per cent fall in output next year, as opposed to a 1.25 per cent rise, could see borrowing reach £200 billion in 2010.
Debt
The Chancellor projected debt to top £1 trillion for the first time in 2011-12. But now this threshold could be reached by next year.
An overdraft of £1 trillion represents 66 per cent of GDP — leaving Gordon Brown's rule that debt should not exceed 40 per cent of GDP in tatters. The Treasury forecast debt to rise to £1.37 trillion in 2013-14 but this now also looks optimistic.
Reader views (1)
Darling, you are the only optimist in the Country, sorry here is Gordon !
- Brian Hughes, North Wales, 25/04/2009 12:28
Report abuse
