£700bn of government debt

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Royal Mail workers march in Milton Keynes – face privatisation at the hands of a government desperate for cash
Royal Mail workers march in Milton Keynes – face privatisation at the hands of a government desperate for cash

GENERAL government debt is now over £700 billion as the slump hits public finances.

The Office for National Statistics (ONS) said: ‘Net debt was £703.4 billion at the end of January, compared with £607.8 billion a year earlier.’

Government borrowing now stands at 47.8 per cent of UK economic output. Last January, it stood at 42 per cent.

For the first ten months of the financial year it stands at £67.2 billion, while Chancellor Darling has forecast borrowing for the full year of £77 billion.

The debts of RBS and Lloyds have yet to be included in the public finances.

The ONS said that this could add between £1 trillion and £1.5 trillion to public sector debt, between 70 per cent and 100 per cent of the UK’s GDP.

The ONS added: ‘The most recent figures for public sector net debt excluding Financial sector intervention are for December 2008, when net debt was £594.1 billion (40.4 per cent of GDP).’

Meanwhile, public sector finances recorded a surplus of £8.4 billion in January, well down on the £15.3 billion surplus in the same month last year.

The year-on-year drop in January’s surplus was largely due a slump in tax receipts, which fell by nearly £7 billion.

January is traditionally a good month for the public finances as they are boosted by annual tax receipts.

However, these have been hit by falls in income tax caused by rising unemployment, falls in corporation tax as companies’ profits suffer, and to a degree by the curbing of bankers’ bonuses in the City.

The temporary cut in VAT from 17.5 per cent to 15 per cent has also affected tax revenues.

Andrew Goodwin, advisor to the Ernst & Young Item Club said that tax revenues were eleven per cent down on a year ago and ‘the situation is likely to get a lot worse over the course of the year’.

Meanwhile, mortgage lending fell by 8 per cent in January compared with December, down to £12.4 billion, according to data from the Council of Mortgage Lenders (CML).

This marked a 52 per cent decline compared to the same month last year.

CML head of research Bob Pannell said: ‘Mortgage lending activity continues to be very weak and while people are searching eagerly for some signs of recovery, it would be unrealistic to expect a meaningful revival in lending in coming months.’

Homelessness charity Shelter and advice group Citizens Advice said that they were seeing more people struggling to keep up their mortgage payments.

Commenting on the UK’s public finance figure, TUC General Secretary Brendan Barber said: ‘A steep fall in the tax take in the middle of a recession will surprise no-one. But it is absolutely right to let the deficit grow.

‘When companies and consumers stop spending, the public sector must fill the gap.

‘But this deficit also makes tackling tax avoidance and evasion, and getting tough on tax and secrecy havens such as Antigua, even more urgent.

‘The super-rich who did so well out of the asset bubble that brought us recession must pay their fair share of the bill for putting it right.’

The TUC report The Missing Billions found that the public purse loses £13 billion a year through tax avoidance by the wealthy and £12 billion a year through tax avoidance by corporations.