Recession swells British government’s debts

LONDON — The recession’s toll on British government finances was highlighted Friday by official figures showing the government borrowed a record 16.1 billion pounds ($26.3 billion) in August, just days after Prime Minister Gordon Brown conceded that whoever wins the next election will have to take an axe to spending.

The rise took net borrowing to 65.3 billion pounds for the first five months of the financial year so far, the Office for National Statistics said — more than double the 26.1 billion pounds seen at the same stage last year.

As with many other countries, Britain’s public finances have deteriorated sharply as tax revenues have sunk during the recession and government spending on unemployment benefits has soared. In the first quarter of the year, the British economy shrank by a massive 2.4 percent, followed by 0.8 percent contraction in the second. Growth has been hit by a collapsed housing boom and losses in London’s financial services sector.

With a general election required by June next year, the political debate has moved swiftly on how debt will be brought down. The opposition Conservative Party have for months been trying to make the state of the public finances the number one issue in an attempt to pin blame for the ballooning deficit firmly on Brown.

Earlier this week, Brown admitted for the first time that his Labour Party government would have to make cuts in public spending after the next general election, which Brown has to call by June next year.

A Treasury spokesman said Friday that Britain’s finance chief Alistair Darling is meeting with fellow ministers in the run-up to the next set of budget predictions, due later in the autumn. However, he played down reports that a special set of discussions to identify potential targets for cuts had already been started in the wake of Brown’s admission.

Jonathan Loynes, chief European economist at Capital Economics, said borrowing this financial year looks like it will overshoot Darling’s 175 billion pound forecast by around 50 billion pounds.

“With the main political parties now openly discussing plans to cut public spending more sharply than current plans allow, a severe fiscal squeeze is on the way,” he said.

Though August’s borrowing was slightly lower than the 18 billion pounds forecast by most economists, it still represented the highest ever for the month, and the third biggest monthly borrowing total since records began.

At the end of August, Britain’s net debt stood at 804.8 billion pounds ($1.315 trillion), or about 57.5 percent of the value of the country’s total output.

Many economists fear that the country’s debt burden may actually exceed gross domestic product in the next couple of years amid mounting debt interest payments and rising unemployment costs.

Treasury chief Alistair Darling said in his April budget that the figure would likely peak just below 80 percent of GDP in 2013-2014, but his forecasts will likely be revised soon, especially as the recession in 2009 has been deeper than he expected.