February 19, 2009 / 10:36 AM / 10 years ago

Budget deficit hits record high as revenues tumble

LONDON (Reuters) - Tumbling tax receipts in January drove the budget deficit for the fiscal year so far to a record high and statisticians warned bank bailouts could raise total debt by up to 1.5 trillion pounds, or 100 percent of GDP.

A pile of one pound coins is seen, in central London June 17, 2008. REUTERS/Toby Melville

Public sector net borrowing stood at 67.201 billion pounds between April 2008 and January, official figures showed on Thursday.

That is the highest since records began in 1993.

Company tax receipts were down 24.1 percent on the year in January.

“January’s UK public finances figures confirmed that the downturn in the economy is starting to hit the fiscal position very hard indeed,” said Jonathan Loynes, chief European economist at Capital Economics.

“Public borrowing could now total 100 billion pounds this year before climbing much further next year.”

Gilt futures fell after the data on fears that the government, already issuing a record amount of bonds this year, would have to ramp up supply even more next year.

A sale of 2012 gilts after the data, however, was heavily oversubscribed, indicating still healthy demand for government bonds.

The government has already forecast borrowing of 118 billion pounds, or some 8 percent of GDP, in the next fiscal year but this could be much higher, especially if Prime Minister Gordon Brown chooses to pump more money into the ailing economy in the budget on April 22.

Brown on Wednesday called on Europe and the United States to agree on more stimulus for their economies in time for a summit of G20 leaders in London on April 2. Expectations are rising he could use this as cover for more government borrowing.

GLOOMY OUTLOOK

While the outlook for the public finances was bleak, the cash measure recorded a surplus of 25.084 billion pounds last month compared with a forecast of 16 billion pounds.

December’s net cash requirement was revised down by 20 billion pounds to 19.896 bln.

This was a result of the reclassification of Royal Bank of Scotland Group and Lloyds Banking Group as public sector entities.

Previously the banks had been regarded as private sector firms and so last October’s government recapitalisation was treated as a payment rather than a transfer between one sector of the government to another.

But bringing the banks onto to the government’s balance sheet will ultimately raise public sector net debt, already at a record 47.8 percent of gross domestic product, the ONS said.

The addition, it said, could be in the region of 1 trillion to 1.5 trillion pounds, or 70 to 100 percent of the economy’s total annual output.

“We would stress that none of this means that the UK government, or indeed, the overall economy, is bankrupt, as has been suggested,” said Loynes.

“For now at least, the level of public sector net debt is still quite low by historical and international standards and the public sector’s interest bill is correspondingly manageable.”

Editing by Jason Neely

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