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Record level of government debt

UK public sector net debt reached a total of £799bn in June 2009, compared to £641.4bn in the same month last year, and was the highest level since records began in 1974. This outstanding debt amounted to 56.5% of Gross Domestic Product, which compares with 44.4% in June 2008. When the intervention in the financial sector is excluded, net debt stood at £657.5bn in June 2009 which amounted to 46.6% of GDP.

 

Net borrowing in June 2009 was £13.0bn which compares with £7.5bn in the same month last year, although the figure was lower than the £15.5bn which many analysts had been expecting. Overall it looks as though the Chancellor, Alistair Darling may well meet his forecast of total net borrowing of £175bn this financial year.

Government finances are continuing to worsen

Government finances are continuing to worsen

 

The public finances are obviously in a parlous state at the moment and some hard decisions will have to be faced – although it is likely that no-one will address them publicly until after the general election next year.

 

The main reasons for the current problem are the fall in the tax take and the rise in benefit payments, although we shouldn’t forget the government’s spending spree in recent years. The National Audit Office has just said that tax receipts fell by 5% last year. Taxpayers paid the Treasury £435.7bn in 2008-09, compared with £457.4bn in 2007-08. There were falls of £6.1bn in stamp duty payments due to the collapse in house sales; £5bn lost in corporation tax, mainly in the financial sector; £6.4bn less in VAT, partly due to the cut in the rate of VAT to 15% last December, plus the fact that shoppers are cutting back; and a drop of £5.7bn in income tax and national insurance contributions as workers lost jobs and bonuses were cut back.

 

At the same time the government is having to spend more on unemployment and other welfare benefits and is currently spending £13.50 for every £10.00 which it raises in tax. The general feeling is that it will take at least five years of spending cutbacks allied to economic recovery before the government finances get back to where they were two years ago. Some forecasters are even more pessimistic than that.

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Posted in government borrowing, government spending

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