Public borrowing hits record levels
UK public sector borrowing hit record levels last month adding yet more pressure on the public finances
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Thursday, 18, Jun 2009 10:42
UK public sector borrowing hit record levels last month adding yet more pressure on the public finances, official figures out today show.
The public sector net borrowing was £19.9 billion in May and now stands at £30.5 billion after only two months of the financial year, twice the level recorded a year ago.
The country's overall net debt now stands at a colossal £774.8 billion, equivalent to 54.7 per cent of the UK's GDP, the data from the Office of National Statistics shows.
Chancellor Alistair Darling has predicted net borrowing over this year will hit £175 billion with a drop in tax revenues and spending on unemployment benefits soaring, along with the cost of recent financial bailouts.
The figures published today show during last month corporation tax taking fell 27 per cent, VAT revenues were down 19 per cent and income tax taking were almost 11 per cent lower than last year.
"The public finances for May were absolutely dire," said Howard Archer, chief UK economist at IHS Global Insight.
"Mr Darling clearly has a major battle in limiting the public sector net borrowing requirement to £175 billion in 2009/10, although current signs that the economy could be at least temporarily stabilising gives him hope.
"Whether or not he does hit his targets for this year, it is evident that further major fiscal tightening measures will be needed to get the public finances back to a sustainable state over the long term."
Last night, Mervyn King, governor of the Bank of England called on the chancellor to balance the books - in a speech in the City with Mr Darling sat right next to him.
"It was right to use a temporary fiscal stimulus to counter the depth of the downturn experienced last year," he said.
"But five years from now national debt, as a proportion of national income, is expected to be more than double its level before the crisis.
"So it is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next parliament, so returning to a gradually declining path for the ratio of national debt to national income."
Mr Darling defended his plans to clear the public debt and the need to push spending and cut taxes in the recession.
"Lower tax receipts, higher benefit payments and the costs of supporting the financial system have inevitably pushed up deficits and debt," he said.
"It is clear to me that to have done nothing, to have walked away, would have caused more pain, prolonging and deepening the recession."
The chancellor added: "I have been very clear that support for the economy now must be matched by action to ensure we live within our means in the medium term. And just as we were one of the first countries to recapitalise the banks, we were also one of the first to set out a plan to reduce borrowing.
"A plan to cut our deficit in half over four years - with tax increases for those that can afford them and slower spending growth in the years ahead. No-one wants to put up taxes. And I am fully aware of the need to keep our corporate and personal tax rates competitive.
"But it is right to do it in a way that those most able to bear the burden make the greatest contribution."