Borrowing nearly doubles in a year

Thursday 20 November 2008 13:11 GMT

The nation's public finances showed more signs of decline today after official figures revealed the worst October in 14 years.

The public sector borrowed a net £1.4 billion last month - compared with a net repayment of £1.8 billion a year earlier, according to the Office for National Statistics (ONS).

The gloom comes just days before Chancellor Alistair Darling is set to pile up further borrowing with a tax and spend give-away to kick-start the economy in Monday's Pre-Budget Report.

October is usually a strong month for tax receipts but this year was the first time since 1994 that net borrowing was recorded.

The figures showed net borrowing since April soaring to £37 billion - almost double the £20 billion seen in the same period last year.

October's figures gave growing evidence of the impact of the slowdown on tax revenues - even before the UK's recession is officially confirmed.

Income tax receipts were £1 billion below a year earlier, corporation tax revenues were flat and national insurance contributions dropped by £300 million.

Overall growth in receipts was virtually flat although total current spending was more than £2 billion ahead of the previous year.

The Government's current budget surplus was reduced to just £1 billion - compared with £4 billion 12 months earlier.

According to the Chancellor's March Budget, net borrowing was forecast at £43 billion over the whole year, although it currently stands at £37 billion with a full five months to go.

Other factors such as the £2.7 billion paid to resolve the 10p tax row and a package of measures to help the housing market - including raising the stamp duty threshold - have added further pressure on the figures.

IHS Global Insight economist Howard Archer said the March forecasts had "long been blown out of the water".

"The public finances showed further sharp deterioration in October, highlighting the impact of the sharp economic slowdown, markedly weak housing market activity and prices, rising unemployment and Government policy concessions.

"Indeed, at the current rate of deterioration, the net borrowing requirement is on course to hit £67.5 billion in 2008/09, without taking into account any immediate stimulus actions that may be unveiled by the Chancellor on Monday," he said.

Treasury Chief Secretary Yvette Cooper acknowledged that the public finances were under pressure, but insisted the Government was right to increase borrowing in the short term.

"The public finances have been affected by the global economic problems. Particularly tax revenues from the financial services are, of course, being hit heavily by the global financial crisis," she told BBC Radio 4's The World At One.

"But I think it is right to increase borrowing to support the economy right now because we did cut debt while the economy was growing. That does allow us to increase borrowing now so that we can boost the economy."

She said that once the current problems were over, the Government would take action to rebuild the public finances.

"Of course you have to make sure borrowing comes back down again as the economy grows. The Chancellor has said that you have to live within your means in the medium term."

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