Page last updated at 16:55 GMT, Thursday, 20 November 2008

UK borrowing rise 'is necessary'

Money
The government is set to reveal its new debt forecasts next week

The government has said it is "right" to raise borrowing, as figures showed public debt rose by 1.4bn last month.

The increase came amid expectations the chancellor will cut taxes in Monday's pre-Budget report, to help the economy.

Treasury minister Yvette Cooper said borrowing should increase now - but would come down "in the medium term".

The Tories accused ministers of "playing havoc" with finances. But the Lib Dems warned of "civil disobedience" if the downturn was not addressed.

According to the Office for National Statistics, public sector net debt rose to 640.9bn, or 42.9% of GDP.

Party row

In the first seven months of the financial year, net borrowing has reached 37bn, not far from the Treasury forecast of 43bn for the whole year.

Chancellor Alistair Darling is expected to unveil a programme of tax cuts and public spending in his pre-Budget report on Monday, in what he will say is an effort to prevent a long, deep recession.

Earlier this week, the Conservatives dropped their pledge to match Labour's spending plans for 2010/11, instead calling for a "low-tax, low-debt" economy.

I hope the fiscal stimulus will work... it needs to be tried. Levers have to be pulled
Vince Cable, Lib Dems

After the government borrowing figures were released, Ms Cooper told the BBC: "The public finances have been affected by the global economic problems.

"Particularly tax revenues from the financial services are, of course, being hit heavily by the global financial crisis.

"But I think it is right to increase borrowing to support the economy right now because we did cut debt while the economy was growing.

"That does allow us to increase borrowing now so that we can boost the economy."

'Failure to prepare'

She added: "Of course you have to make sure borrowing comes back down again as the economy grows. The chancellor has said that you have to live within your means in the medium term."

For the Conservatives, shadow chancellor George Osborne said: "Gordon Brown's failure to prepare Britain means that borrowing has reached record levels before we've seen the worst of the downturn and before he embarks on a further borrowing binge.

"To clear up this mess and set Britain on a path to lasting tax cuts, we need to slow the growth of government spending from 2010 and we need an Office of Budget Responsibility so that never again can a government play havoc with the public purse."

Liberal Democrat Treasury spokesman Vince Cable said: "I hope the fiscal stimulus will work... it needs to be tried. Levers have to be pulled."

He added: "There would be massive civil disobedience if the government simply let the recession run its course."

Deficit preview

Normally, the government runs a surplus in October as quarterly corporate tax receipts flow in.

In October last year, it made net deficit repayments worth 1.8bn.

In the pre-Budget report Mr Darling will reveal his new forecast for the Budget deficit.

He will have to pencil in at least 60bn for public sector borrowing figure this year, as rising unemployment and and a slowing economy squeeze tax revenues.

But it could well turn out to be much higher than that, if reports of tax cuts and extra public spending worth up to 15bn to 30bn turn out to be correct.

The gap in government revenues comes as the UK economy is set for its biggest slowdown since at least the 1990s.

The UK economy contracted by 0.5% in the three months to September, and most forecasters, including the Bank of England, are expecting it to continue to decline into 2009.



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