This morning the Office for National Statistics painted a frightening picture of the UK’s current financial position: the national debt soared to £703bn last month, equivalent to 47.8% of GDP, which is the highest proportion in over 30 years. January is usually a good month for tax receipts, but with incomes and corporate profits being squeezed in the downturn, revenues have plummeted – the monthly surplus was just £3.3bn, compared to £13.9bn last year. And perhaps most alarmingly, the ONS also plans to add the liabilities of bailed-out RBS and Lloyds to the public sector debt, which will push us an extra £1.5 trillion into the red…
Government borrowing has now rocketed to £79.3bn in the last year, and it’s ramping up with every passing month – so Chancellor Alistair Darling’s forecast of £77.6bn for the current financial year is clearly going to end up being ludicrously low. The annual budget deficit has been forecast by the Treasury to rise to £118bn in 2008/9, equivalent to 8% of GDP – but the consensus now is that it will probably soar to £130bn, with no recovery likely until 2011/12 at the earliest.
There are two main reasons for this. First and foremost, the tax take is going down – way down. Given the impact of self-assessments, bonuses and end-of-year corporate profits, January always sees the biggest take of the year. But this year income tax is down £1bn, corporation tax down £2.4bn, and of course, VAT receipts are down too. In fact, the exchequer has collected £10bn less in tax in this financial year than it had at the same point last time round – despite Darling’s claim that the shortfall would be just £2bn for the entire year....
At the same time, the Government’s financial commitments have been going up: as well as the various public spending initiatives that are being hurried through to boost the economy, the benefits bill has been steadily rising as more and more people have been joining the dole queue. Taken together, this meant the January surplus of £3.3bn was far lower than usual (and far lower even than the £7bn the City was expecting).
What’s more, these dismal numbers are about to even get worse, when the ONS adds RBS and Lloyds onto the public books. This will increase the public debt by somewhere between £1trn and £1.5trn – which, on the more pessimistic figure, is roughly equivalent to the UK’s entire annual income. It’s clear that the country is going to be paying for the mistakes of recent years for a very long time to come...
In today's bulletin:
RBS and Lloyds to add £1.5trn to national debt
UBS coughs up names and cash in US tax probe
B&Q UK slide drags down Kingfisher sales
Business blames bizzies for climbing crime costs
Employers worried about their health, not safety