Page last updated at 17:47 GMT, Wednesday, 9 December 2009

Alistair Darling to borrow more this year


Darling's growth and inflation forecasts

Chancellor Alistair Darling is predicting a slight increase in borrowing costs to £178bn this year - up from a previous estimate of £175bn.

But borrowing as a percentage of GDP would fall from its current rate of 12.6% to 4.4% in 2014-15, he pledged.

He said that to cut borrowing too soon would risk derailing the recovery.

BBC chief economics correspondent Hugh Pym said that the figures "don't provide much cheer... they still look painfully high".

UK budget deficit

The sum of all the country's debt is predicted to continue rising until 2015-16 - peaking at 78% of GDP. This year, Mr Darling forecast it would be 56% of GDP. He says that is in line with the other major economies.

But the Conservatives said he had not done enough to tackle the deficit.

"The full scale of the economic disaster that Labour has visited on this country is clear to us all," said shadow chancellor George Osborne.

"Every family in the country is going to be forced to pay for years for this Prime Minister's mistakes," he added.

Growth forecasts


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Miles Templeman from the Institute of Directors said: "The key theme of this year's pre-Budget report is prudence postponed. There must be serious doubt as to whether the government has any commitment to reducing the deficit."

Mr Darling also said the economy would shrink by 4.75% this year - more than the 3.5% contraction previously estimated.

But he stuck to his growth forecast for next year, predicting expansion of 1-1.5% in 2010-11, and for the following year a growth rate of 3.5% is predicted.

Some economists think that the 2011-12 figure is overly optimistic.

"There are risks still that borrowing numbers from 2011 are underpinned by over-optimistic growth numbers," said Ross Walker from RBS.

UK growth forecasts

The sharp deterioration in the state of the public finances in the past couple of years has been caused by a fall in tax receipts during the recession, as well as the cost of bank bail-outs.

Public finances have also been hit by higher welfare spending, such as on unemployment benefits, and fiscal stimulus plans to boost the economy - for example, the car scrappage scheme.

Future plans

Mr Darling is broadly sticking to existing spending plans for next year, with public spending set to increase by £31bn.

That is a rise of 4.6%, or 2.2 % in real terms, compared with this year.

BBC economics editor Stephanie Flanders said: "The chancellor has announced a lot of small things but not changed the big picture, which is that he will not spend very much over the next few years, and halve the deficit as a share of GDP."

The chancellor expects spending to grow by 0.8% a year in real terms after 2011. At Budget time, he was expecting it to grow by 0.7% a year over that period.

Government spending

In his speech, Mr Darling pointed to more difficult times ahead, and said: "We have to be realistic - the spending environment will be tough over the next few years.

"As long as extraordinary uncertainties remain in the world economy this is not a time for a spending review."

The lack of detail about specific spending plans disappointed some.

"He didn't do much to reassure the markets that the government has a well mapped-out plan to bring down the deficit," said Vicky Redwood from Capital Economics.

Liberal Democrat Treasury spokesman Vince Cable said: "The chancellor has ducked the hard choices on spending and cuts."

"Instead of facing up to reality he has chosen to move the goalposts by relying on fanciful growth forecasts," he said.

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