The Treasury borrowed almost £15bn in September, more than any other government has before for that month in peace time.
Official statistics released yesterday showed that net borrowing by the public sector amounted to £14.8bn last month, leaving the total of public sector debt at £824.8bn, equivalent to 59 per cent of gross domestic product.
Excluding the cost of rescuing the banks, total debt was £682.8bn, equivalent to 48.9 per cent of gross domestic product. This remains low by most international standards, but such is the scale of annual borrowing that it will reach almost 100 per cent of GDP in a few years.
Public sector borrowing so far this year has jumped to a record £77.3bn, compared with £33.8bn this time last year.
The news comes as the Governor of the Bank of England, Mervyn King, predicted that, "it is likely that in the second half of this year, the UK economy will return to positive, if modest growth." The National Institute for Economic and Social Research, a respected think-tank, issued a fresh warning about the sustainability of such a debt.
The institute said that it "may reach 93 per cent of GDP by 2015, and will leave a burden for our descendants. Fiscal consolidation will be expensive, but the faster it happens the lower the rise in debt."
The institute added that, "there is a case for extending working lives by three years in order to reduce the structural deficit by 3 per cent of GDP". Raising the standard rate of income tax by 7p, they suggested, or widening the VAT base by 10 per cent of spending would both raise 2 per cent of GDP revenue, as would a five-year public sector pay freeze, or a 10 per cent cut in services. "All are costly and consumption would be higher and debts lower if the retirement age is increased more rapidly than planned," it said.
However, some said that the Government may yet meet its forecast of borrowing in this fiscal year of £175bn. Gemma Tetlow, at the Institute for Fiscal Studies explained: "The trends suggest that the Treasury is currently on course to just meet its forecast. This would still be the highest level of borrowing since the Second World War, and there is still great uncertainty."
The NIESR says that after falling this year by 4.4 per cent, GDP will grow by 1.3 and 1.5 per cent in 2010 and 2011.Reuse content