Page last updated at 13:02 GMT, Monday, 22 September 2008 14:02 UK

Crisis 'to double UK borrowing'

Public borrowing will be allowed to rise, the government has said.

Britain's Budget deficit is set to hit 90bn next year as the credit crisis fallout and economic slowdown hits tax revenues, economists have warned.

The figure - from the Centre for Economics and Business Research - is more than twice the amount predicted by the chancellor in the Budget.

Falling profits in the finance sector - a key provider of tax revenues - and a slowing economy are to blame.

The prime minister has said borrowing will rise during the downturn.

Addressing the Labour Conference in Manchester, Chancellor Alistair Darling talked of policies "enabling us now to let borrowing rise to support the economy and families now when they need it most".


The CEBR predicted that public sector net borrowing would rise to 63.3bn in 2008/9 and 90.1bn on 2009/10.

This is against forecasts in the last Budget of 43bn and 38bn respectively.

"This year and next will see a significant shortfall in corporation and income tax receipts as well as a large reduction in stamp duty receipts," the CEBR said.

The total it had predicted excluded any extra borrowing needed to bail-out bank or building societies, the research body added.

Last week, the Office for National Statistics (ONS) said that the government rescue of Northern Rock bank last year had pushed up the level of the national debt.

'Right to borrow'

In August, net government debt stood at 633bn which was 43.3% of the nation's economic output, known as GDP.

A year ago, the level of state debt stood at 507bn, or just 36.4% of economic output.

The ONS said most of this was due to the cost of buying Northern Rock and taking on its liabilities.

In a BBC interview on Sunday, Gordon Brown admitted that borrowing would have to rise during the economic downturn.

"It is right to borrow at the moment. Those people who say we should be cutting public expenditure and cutting investment at the moment are wrong," he said.

"In these unique circumstances, it is right to borrow and raise public expenditure."

The Conservatives are tipped to set out new rules to limit public borrowing if they are elected.

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