Economists warn over public borrowing

The Independent (UK)
More dire news on the nation’s creaking finances today sparked warnings that annual public borrowing could balloon to £120 billion within three years.

Official figures showed net borrowing hitting a record £37.6 billion between April and September – higher than for the whole of the previous year.

The figures – described by one economist as “dreadful” – leave Chancellor Alistair Darling’s forecasts of £43 billion of borrowing this year in tatters.

The UK’s finances have been hit as tax revenues fall and benefit spending rises as the economy hurtles towards recession. Tax handouts to tackle the 10p tax row and kick-start the housing market have added to the burden.

Capital Economics’ economist Paul Dales said net borrowing could reach £120 billion by 2010/11, or 7.8 per cent of national output.

This would be on a par with the £51 billion racked up by the Conservatives in 1993/4, which also stood at 7.8 per cent of GDP.

“The economic downturn is set to push borrowing to alarmingly high levels,” Mr Dales said.

With an election due in 2010, an incoming Government will be faced with the unpalatable choices of cutting spending, raising taxes – or both – to put the finances on a firmer footing.

Mr Darling said in March’s Budget that public sector net borrowing would reach £43 billion in the current financial year, before falling to £38 billion next year.

But these figures will be hiked upwards in his pre-Budget statement, due before Christmas. The Chancellor said yesterday he was ready to spend his way out of a looming recession.

Prime Minister Gordon Brown’s spokesman said the UK’s public finances were “in much better shape than most developed countries”.

He added that the UK’s lower net debt as a share of GDP than most other countries meant it was able to borrow more to support the economy. This figure stood at 43.4 per cent in September including nationalised Northern Rock’s liabilities.

The economic slowdown means that sluggish growth in tax receipts has been outpaced by Government spending.

According to the figures, the Government’s current receipts grew by £1 billion to £39.2 billion but expenditure jumped by almost £2 billion to £43.6 billion.

Read the rest:
http://www.independent.co.uk/news/business/news/
economists-warn-of-ballooning-public-borrowing
-967224.html

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