Page last updated at 16:34 GMT, Monday, 20 October 2008 17:34 UK

UK public borrowing sees rise ahead

ANALYSIS
By Hugh Pym
Economics editor, BBC News

By any standards the latest reported levels of public sector borrowing are eye-watering.

Closing down sale sign
The government is trying boost the weakening economy

Even before a recession has developed - if indeed it has already - the government has racked up a record amount of borrowing and it can only increase as the economic downturn deepens.

Public sector borrowing of 8.1bn in September was the highest since records began in 1993.

In the first six months of this financial year, April to September, the government borrowed nearly 38 billion pounds, up from 21.5 billion in the same period of 2007.

This had the dubious distinction of being the largest such number since 1946.

So in just six months the Treasury has almost got to the level which it forecast for the full year of 43bn.

That 43bn forecast has already been consigned to the bin at the Treasury.

An updated forecast is being worked on and will be unveiled at the time of the pre-Budget report.

Chancellor Alistair Darling will have to pencil in at least 60bn for a public sector borrowing figure this year.

It could well turn out to be higher than that.

Fragile economy

Those of course are cash numbers.

As a percentage of national income the figures look more respectable. If the government goes into the red to the tune of 60bn this financial year, that will be only just over 4% of national income (GDP).

This would still be below the figure seen in 1996 and a lot less than the 8% of GDP accumulated in 1993 as the bills from the last recession were being paid.

Job Centre scene
Higher unemployment will mean higher benefit bills

The chancellor can reasonably argue that during an economic downturn borrowing will have to rise as higher benefit bills are paid and tax revenues fall away.

Cutting spending or raising taxes to plug the gap in public finances would only clobber an already fragile economy.

A Treasury spokesperson has said today it would be right to increase borrowing to support the economy.

Deficit

But the bills have to be paid sometime.

In theory when economic growth recovers to its long term trend rate, borrowing will fall automatically as taxes come flowing back into the Exchequer and the jobless total falls.

However, the government goes into this downturn with a deficit built up even during years of strong growth.

There may well be a residual level of borrowing which cannot be rectified by a pick up in growth.

If that is the case, expect taxes to be raised or spending to be squeezed by whoever is chancellor in 2010.




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