Britain owes £801,000,000,000
THE Treasury was forced to borrow a record £8billion to keep public services running last month, as the UK's national debt hit an all-time high.
In the first quarter of this year, net borrowing soared by 49.7bn, compared with 15.9bn last year, while tax revenue plummeted. The nation's debt, at 800.8bn, accounts for 56.8 per cent of gross domestic product (GDP), its highest level since records began. It is equivalent to 13,400 for every man, woman and child.
Chancellor Alistair Darling's forecast of 175bn in borrowing for the whole year now looks increasingly uncertain, as the latest results were worse than the 500 million deficit for the month predicted by economists. July is normally a key surplus month for the economy because quarterly corporation tax comes in, making the result all the more negative for the public finances, published by the Office for National Statistics.
Tax revenue from businesses was down to 6.2bn from 9.9bn in July last year. Accrued income tax for the month was down 13 per cent, while VAT takings were off 18 per cent from last year.
Total receipts, which include taxes and interest earnings, were down 15 per cent in July, the biggest decline since 1998.
Meanwhile, public-sector spending, including unemployment payments, was up 10.4 per cent. Yesterday, Mr Darling said the figures were "consistent with the fact that the downturn at the beginning of this year and end of last year was very severe".
But the Conservatives – whose leader David Cameron suggested this week that Britain may default on its borrowing – said the figures were worse than predicted.
Shadow Treasury minister Mark Hoban said: "The government persists in the outright deception that there is no debt problem, and that it will increase spending after the next election.
"By denying the scale of the debt crisis and the need for spending cuts – whoever wins the general election – Gordon Brown is putting our economic recovery at risk."
Liberal Democrat Treasury spokesman Vince Cable highlighted the collapse in tax revenue and said Britain was heading for a much worse deficit than predicted. "What is particularly concerning is the government's hopes for the recovery of the public finances are based on extremely optimistic growth forecasts," he said. "Without this growth, we will be heading for even higher levels of debt."
However, there was one bright spot for the economy, as retail sales rose 0.4 per cent – twice as fast as expected in July. Household goods sales gained 4.5 per cent on the month, their biggest rise since August 2006.
ING economist James Knightley said: "The gains in retail sales give us greater confidence that GDP will rise in the third quarter, meaning the UK exits recession."
In addition, the Institute for Fiscal Studies, an independent think tank, said the reversal of VAT cuts at the end of this year would boost revenues. But any recovery is likely to be made more precarious by the state of the public finances, even if sales continue to rise.
British Chambers of Commerce chief economist David Kern said: "The further improvement in retail sales confirms our assessment that the recession is ending. However, any recovery is likely to be weak and fragile.
Vicky Redwood, at Capital Economics, said: "The necessary fiscal consolidation is going to be a huge constraint on the economic recovery."
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