Page last updated at 16:08 GMT, Wednesday, 24 March 2010

Budget 2010: Public finances

Budget deficits

The budget revealed the smallest of improvements in the government's public finances, which are still in a dire state.

Although the budget deficit - the gap between the amount the government earns through taxes and the amount it spends - has widened dramatically in recent months, the chancellor revealed that borrowing this year would be less than expected.


Borrowing would peak at £167bn this year, Alistair Darling said, down from the £178bn previously predicted.

But that is still 11.8% of GDP.

The government is aiming to reduce the deficit by half over four years. Its plan relies on a strong economic recovery to boost tax income.

But some combination of cuts in spending and/or rising taxes will also be necessary.

Borrowing money to plug the budget deficit means the total amount of money owed by the government will increase.

Chart showing debt forecast

According to the latest figures, UK public sector net debt now totals £848.5bn - or 59.9% of GDP.

Excluding financial sector intervention, public sector debt has reached £743bn - or 52.7% of GDP.

Government forecasts expect debt levels to fall as the economic situation improves, but other forecasters have warned of rises in debt levels close to 100% of GDP.

Total debt - G7 comparisons

Those high debt levels are unsustainable, and could affect the UK's credit rating if held for a long time. And a lower credit rating would make debt repayments more expensive.

Such debt levels, however, are not unusual among the most developed economies.

According to the latest figures from the International Monetary Fund, the UK has the lowest debt levels of the G7 nations.

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