Alistair Darling attacked as borrowing hits £75bn

Alistair Darling attacked as borrowing hits £75bn
Philip Webster, Francis Elliott and Gary Duncan

Graphic: Britain's burgeoning debt

The Chancellor has been accused of losing control of the public finances as borrowing for the financial year soared to £75 billion, the highest since records began, after a dramatic collapse in tax revenues. Alistair Darling now faces drastic revisions to his borrowing and growth forecasts in next month’s Budget after the deficit widened to £9 billion last month, eight times worse than a year ago. It means he is certain to exceed his forecast of a £78 billion deficit for the current year.

The latest grim news came as David Cameron prepared the ground for spending cuts under an incoming Conservative administration. He ditched remaining pledges to match Labour’s expenditure. Promises to equal spending on education and defence will not be extended when they run out next month, it emerged, as the Tory leader warned of tough choices ahead.

There were equally bleak forecasts from the International Monetary Fund. It now projects that the toll from the recession and the financial crisis will force Britain to borrow 9.5 per cent of GDP in 2009, equivalent to £140 billion, and that the deficit will soar to 11 per cent of GDP, or more than £160 billion, next year.

“Leaving aside the oil producers, the largest increases in deficits are expected in the United States and the United Kingdom,” the IMF noted. However, it believes that US public borrowing will reach only 7.7 per cent of GDP in 2009 and 8.9 per cent in 2010 —still markedly lower than the totals expected for Britain.

The Tories say that Gordon Brown will chair next month’s G20 summit knowing he cannot afford any further discretionary stimulus to the economy. George Osborne, the Shadow Chancellor, said: “These dreadful figures show how the Labour Government has given us the worst public finances in the developed world.”

VAT receipts in February were 31 per cent below last year, contributing to an overall 10 per cent cut in receipts, because of the slowing economy and the temporary VAT cut introduced late in 2008. A year ago net borrowing was £1.1 billion — just over one tenth of today’s figures. The £75.2 billion figure is more than three times higher than the £23 billion recorded a year ago.

Mr Osborne said that the national debt was now more than £100 billion higher than the Government predicted even last year — more than £4,500 for every family. “Labour’s debt crisis means people in Britain will be paying for Gordon Brown’s mistakes long after he has gone,” he said.

Total current tax receipts fell to £40.7 billion from £45.1 billion a year earlier, although spending rose by 6.5 per cent to £43 billion. This includes a rise of £1 billion in social benefits to £12.1 billion as unemployment continues to rise.

Britain is now labouring under a debt burden of £717 billion, the figures showed, more than £100 billion above a year earlier. Net debt as a proportion of GDP soared to 49 per cent, another record, and even excluding the impact of financial sector bailouts, still stood at 40.7 per cent, the highest since June 1998.

Mr Cameron said controlling public spending was vital to meet the “overriding objective” of paying off national debt. “The work to restore fiscal sanity will have to start on Day 1, in order to build the confidence of consumers and the international markets,” he said. “We can’t put this problem off until some time in the future. Not just because I think we have a moral obligation to stop running up bills that will have to be paid by future generations, but because unless we take concrete steps to start reducing this massive debt, the recession will get worse and the recovery will be delayed.”

But he promised that his party would not embark on “slashing spending without regard to the social consequences”, adding: “Fiscal responsibility needs a social conscience or it is not responsible at all,” he said.

A promise to equal Labour’s spending totals for this financial year was abandoned by Mr Cameron last autumn as the scale of the recession became clear. Only education, health, overseas aid and defence budgets would be ring-fenced by an incoming Tory administration. But it emerged yesterday that only a commitment to increase health and international development spending in real terms will survive into the next financial year.

Economists described the public finance figures as horrendous. “The fiscal outlook is pretty awful and it is going to take a long, long time to repair it,” Ross Walker, of RBS, said. “We are heading for a £10 billion overshoot [in borrowing] relative to the November forecasts.”

Yesterday’s figures showed that the recession is badly undermining flows of tax payments into the Treasury. In the four months to February corporate tax receipts plunged by 22.3 per cent from the same period last year — compared with the Treasury’s prediction for a drop of just 13 per cent in the second half of the financial year.

The Tories say that Gordon Brown will chair next month’s G20 summit knowing he cannot afford any further discretionary stimulus to the economy. George Osborne, the Shadow Chancellor, said: “These dreadful figures show how the Labour Government has given us the worst public finances in the developed world.”