Britain’s National Debt Rises Over £1 Trillion

BRITAIN’S national debt has breached £1 trillion for the first time in December, despite a bigger-than-expected fall in borrowing, showing huge challenges ahead in bringing the public finances under control.

In spite of the rise in net debt, the nation’s finances are still in better shape than expected thanks to rising tax receipts and a slowdown in government spending, official figures revealed on Tuesday.

Data showed that the public sector net debt, excluding the 2008 banking bailout package, rose to 1.004 trillion pounds in December, the highest since records dating from 1993.

The total is equivalent to 64.2 percent of GDP, up from 59.4 percent a year ago.

“(This) shows the unsustainable level of spending this country built up over the past few years, and shows why it is critical for our nation’s future that we deal decisively with the deficit,” a Treasury spokesman said.

There was some good news for the chancellor, George Osborne, as public borrowing is down for the current financial year, putting him on track to meet his targets.

The government borrowed £2bn less in December than £15.9bn in December 2010, as the bank levy boosted the public coffers and spending fell slightly.

The Office for National Statistics said public borrowing, excluding banking bailouts, the government’s preferred measure, fell to £13.7bn last month

So far during this fiscal, the government has borrowed £103.3bn, down from £114.6bn at this stage last year. Government receipts climbed 7.3percent, boosted by the VAT increase to 20 per cent from 17.5 percent a year ago, while spending fell 0.9percent.

Most City analysts reckon the chancellor will achieve his target of reducing the budget deficit to 127 billion pounds, or 8.4 percent of GDP, this fiscal year, from 136 billion pounds last year.

But much depends on whether euro zone takes a turn for the worse, or Britain slips back into recession.

George Buckley, economist at Deutsche Bank, noted that when non-discretionary spending in the form of social benefits and interest payments are stripped out from government spending, what is thought of as “core” spending is slowing.

On average this has fallen by close to five per cent year on year over the past four months, and is currently declining by 4.4 percent. This compares to an average rise of close to seven percent during the 10 years up to the 2010-11 financial year, Buckley calculates.

“The government’s austerity drive has clearly gathered pace in recent months,” Buckley said.

Economists said that if the finances keep pace for the remainder of the financial year, there is a chance that public sector finances may be better than those forecast by the Office for Budget Responsibility at the time of the Autumn Statement in November.

At the time, some economists viewed the OBR forecast as unduly pessimistic; a stance the watchdog may have felt it had to take in light of the economy’s poor performance relative to its forecast made in March.

“If the overall performance of the first nine months was replicated through the rest of the fiscal year, the public sector net borrowing requirement would come in at 123 billion pounds in 2011-12, which is below the latest government forecast of 127 billion pounds,” said Howard Archer, economist at IHS Global Insight.

He noted that that forecast had been raised from 122 billion pounds in the Autumn statement.