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Record borrowing to be followed by record spending cuts?

Public sector net borrowing reached a total of £163.4bn in 2009-2010 which was about £3bn lower than forecast by the Chancellor in the April Budget, but was significantly higher than the £96.5bn of borrowing in the previous financial year.

This was the largest borrowing figure since the Second World War and is the equivalent to 11.6% of GDP. National debt, or more precisely public sector net debt, now stands at £890bn or 62% of national income.

The last financial year has seen major falls in tax receipts as a result of the recession with corporation tax and petroleum revenue tax receipts having fallen by 19.5% and income tax and capital gains dropping by 8.4%. There was also a 4.1% fall in VAT receipts. However, there was a rise in government revenues in the first quarter of this year which was the first quarterly rise for two years.

The big squeeze is on its way

Not surprisingly, according to a report just published by the Institute for Fiscal Studies (IFS), the cuts which need to be made between 2011 and 2015 will be the largest cuts since 1976-80. But to listen to the three main parties you would think that this is largely going to be managed by cutting ‘waste’. Well, we can all agree with that, no-one is in favour of more waste!

When it comes down to it, one man’s waste will be another man’s job. But, even so the sums just don’t add up, particularly because none of the parties are publishing their sums. According to the IFS, the Conservatives would need to make the biggest cuts and Labour bring in the biggest tax rises.

According to IFS director Robert Chote: “Given that this fiscal repair job is likely to be the major domestic policy challenge for the next government, it is striking how reticent all three main UK parties have been in explaining how they would confront the task.”

Perhaps we will find out more tonight when the three leaders debate the economy. But don’t hold your breath.

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Posted in government borrowing, government spending, Gross National Income, taxation

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