National debt doubles under Major

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The Independent Online
The national debt has nearly doubled to pounds 360bn since John Major became Prime Minster in November 1990, putting Britain in danger of breaching the Maastricht Treaty limits that it must meet next year to keep open the option of joining the single European currency.

The Treasury's latest economic forecast, which will be published today, will show that because of higher than expected public sector borrowing Britain will struggle to meet the requirements on government borrowings and debt.

A shortfall in tax revenues has jeopardised repeated Government claims that it has done better than other European countries in getting borrowing on a downward path.

The Treasury will confirm that Government borrowing will overshoot its targets this year by several billion pounds.

And the PSBR target for1997/98 is expected to be revised up by pounds 5bn to around pounds 20bn, which only corresponds to a deficit slightly below the 3 per cent of GDP limit set at Maastricht.

This would be more optimistic than the Organisation for Economic Co- operation and Development, which recently predicted a government borrowing shortfall equivalent to 3.5 per cent of GDP.

Along with this year's revised PSBR target of around pounds 27bn, this will take the national debt to over pounds 360bn, twice the end-1990 level. The ratio of debt to GDP will rise above the current 54 per cent ratio, compared with the 60 per cent Maastricht ceiling.

The surge in government borrowing in the run up to the 1992 election, compounded by the recession, account for the soaring national debt.

The level of debt fell to a trough of pounds 183bn at the end of 1990, having declined since 1988. The shortfall between government spending and revenues amounted to pounds 187bn between 1991 and 1995.

Kenneth Clarke, Chancellor of the Exchequer, yesterday attempted to dampen down hopes of pre-election tax cuts, saying they should only be made if public borrowing was firmly under control. Mr Clarke, speaking in Brussels, said: "The overwhelming - the vast majority - of Conservative backbenchers only want tax cuts if they are consistent with control of public spending."

Commenting after a meeting of European finance ministers, Mr Clarke refuted suggestions that his freedom to cut taxes was being limited by Brussels, which is pressing Britain to maintain tighter control of borrowing in the run up to the introduction of a single currency.

The European Union finance ministers yesterday received a report from their monetary committee warning Britain to avoid tax cuts if it wanted to keep open the option of joining monetary union, which means observing the strict rules of the Maastricht Treaty.

Mr Clarke took the committee's advice breezily in his stride, saying: "Its recommendations are entirely in line with our policy. It is not telling me anything I do not know already or that I do not already advocate."

Gordon Brown, the shadow Chancellor, yesterday called for the Treasury's "wise persons" to carry out an independent assessment of the "black hole" in the Government's finances.

Speaking ahead of today's revised economic forecast from Mr Clarke, the Chancellor, Mr Brown said: "The Government has been looking at this for two years. It is now time they came up with an answer."

Seizing on Mr Clarke's admission at the weekend that "my boffins got their estimates wrong", he said that in total, public borrowing had been pounds 44bn higher than was forecast in the pre- election Budget. This meant interest rates were higher than they would otherwise be, he said.

Treasury officials recently admitted they were "baffled" by the pounds 7bn shortfall in tax revenues last year, about half of which was accounted for by an unexpected undershoot in VAT revenues. Corporation tax was also pounds 2bn lower than forecast, which Mr Brown said strengthened his argument for a windfall levy on the privatised utilities.

Malcolm Bruce, Treasury spokesman for the Liberal Democrats, said yesterday: "This Government has been the worst in British history for running unsound public finances."