Author: By Sean O’Grady, Economics Editor
Ministers came under sustained attack on a number of fronts, as the Organisation for Economic Cooperation and Development (OECD) issued a stark warning that Britain must stop living beyond its means and Labour peers criticised plans in the Queen’s Speech for a “National Care Service” as unaffordable.
The Office for National Statistics said that the Government borrowed a record £11.4bn in October, putting the public finances on track for a total deficit of over £200bn this year ? the biggest shortfall by far seen in peacetime. In his Budget this spring, the Chancellor, Alistair Darling, forecast a deficit of £175bn, already the largest among advanced economies. At the pre-Budget report on 9 December he may be faced with the embarrassment of having to revise that figure up again.
It comes at time when Mr Darling is struggling to convince City observers and international credit-ratings agencies that he has a credible plan to haul the deficit down. The Fiscal Responsibility Bill in the Queen’s Speech proposes to halve the deficit in four years, although it contains no sanctions for failure. Should the UK lose its cherished AAA credit rating, as some ratings agencies have hinted, it would have dire consequences for interest rates, for the cost of servicing the national debt and for the value of the pound.
The OECD said Britain’s “weak fiscal position makes further consolidation necessary; an announcement of concrete and comprehensive consolidation plans up-front would enhance macroeconomic stability”. Even were he inclined to do so, there seems little scope for any pre-election bonanza in the pre-Budget report. The Chancellor and the Schools Secretary, Ed Balls, are reportedly engaged in a bitter feud over increases to the schools budget.
In the first seven months of the year, the Government accumulated a total debt of £87bn, compared with £34bn at this time last year. Public sector net debt, colloquially called the national debt, at £829.7bn, has soared to 59.2 per cent of GDP, the highest since the 1970s, and is set to rise much further. The Treasury said it was sticking to its forecast for a £175bn borrowing requirement, as growth is expected to return at the turn of the year and taxes go up in the new year ? VAT will return to 17.5 per cent on 1 January.
Opposition politicians seized the opportunity to chastise the Government. Liberal Democrat shadow chancellor, Vince Cable, said: “It is clear that the UK finances are in a mess. Turning a target to halve the structural deficit into a law is laughable when the Government refuses to say what spending it will cut or the taxes it will raise to actually meet this target.”
A senior Labour peer and expert on the care system, Lord Lipsey, said that the plan to help 400,000 of the neediest pensioners with care in their homes was a “demolition job” on the national budget. Norman Warner, a former junior health minister, added: “There has been no proper impact assessment, and no data to show how this would work. There’s a big question mark as to whether there’s even a Bill ready.”
Howard Archer, chief economist at Global Insight, said: “The figures are dismal. At the current rate of deterioration, the public borrowing requirement is heading for around £215bn in 2009 to 2010. Not only will major, extended public spending cuts have to occur to get the public finances back to a sustainable state, but it seems inevitable that these will have to be accompanied by serious tax hikes.”
Government borrowing in October, a record amount that puts the country on track to borrow £200bn this year.
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