Events | 2010.02.20
Deficit blow adds to pressure on Darling
• Concerns grow over UK after January figures
• Chancellor stands by his full-year forecasts
The government has posted its worst January borrowing figures on record in another blow to Britain\'s attempts to reassure other countries it is not the next Greece or Spain.
Alistair Darling said the figures were "broadly speaking in line with what we expected to happen at this stage" and did not mean he would have to change his £170bn borrowing forecast for 2009-10. After 10 months, borrowing is now at £122.5bn. He said the tax take reflected the fact that Britain was at the fullest depth of the recession a year ago. Nevertheless the figures put pressure on the chancellor to set out a more detailed deficit reduction plan in the budget next month.
Normally Britain is able to post a surplus in January, a month when income tax and corporation tax revenues typically pick up. But, by the government\'s preferred measure of the public coffers, there was a deficit last month – the first time that the government has been forced to borrow in January since records began in 1993.
The Office for National Statistics said public sector net borrowing – the gap between tax and spending – was £4.34bn compared with a surplus of £5.27bn a year earlier. The figure was also much worse than the £2.8bn surplus forecast by City analysts in a Reuters poll.
Britain\'s deficit, its slow growth rate and high inflation have prompted some to speculate it could be the next country to alarm global markets. Fears about the ability of Greece and Spain to cope with their budget black holes have reverberated through global markets.
The pound weakened against the dollar and the euro and British government bond prices fell as January\'s borrowing shock fuelled worries about Britain\'s position.
But a Treasury spokesman said that the government would meet, or even beat, Darling\'s borrowing forecasts for the full year. "These figures keep us on track to meet our pre-budget report forecast. With only two months remaining, borrowing including financial sector interventions is at £122.4bn against a full-year forecast of £170.4bn," he said.
The figures and the fact that Gordon Brown is to set out his four election campaign themes at an event on Saturday prompted speculation that he is considering calling the election early for fear his promised recovery will fade.
Growth figures for the first quarter of 2010 are due to be published in the final two weeks of a 6 May election campaign.
Labour\'s themes are securing the economic recovery, protecting frontline services, standing up for the many and investing in new industries. The party is pushing through its last candidate selections with instructions to have candidates in place by next Tuesday, but most party strategists still say the election will be on 6 May since they need more time to catch up in the polls.
The January deficit stemmed largely from falling tax revenues. In a typical year, the bulk of tax from self-assessment and a large part of capital gains tax comes through in January. This January, those taxes related to gains made in the financial year 2008-9, the last two quarters of which were the worst period of the recession. So company profits – and therefore dividends and the income of the self-employed – were hit as were asset prices such as shares and house prices. That resulted in a 16% year-on-year fall in taxes on income and wealth and outweighed rises in other tax receipts such as from VAT.
Another burden came from rising departmental spending and higher interest payments.
The Conservatives said the figures were "appalling" and an illustration of "Labour\'s debt crisis". The shadow chief secretary to the Treasury, Philip Hammond, said: "We can\'t go on like this. The prime minister must now heed the advice of leading economists and business leaders and set out a credible plan to get the deficit under control, starting this year to put Britain back on her feet. The longer he delays, the more the recovery and our credit rating will be put at risk."
The Liberal Democrat shadow chancellor, Vince Cable, warned against simply slashing spending. "If we cut too soon, the economy will be pushed back into recession, lowering tax revenues even further."
For more information, please visit
http://www.guardian.co.uk/politics/2010/[...]-blow-adds-pressure-to-darling
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