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The British government net borrowings was the biggest on record for August on lower tax receipts.
The public sector net borrowing totaled GBP 16.1 billion in August compared to GBP 9.9 billion recorded in the same period last year, the Office for National Statistics reported Friday. This was the biggest for August and third largest borrowing since records began in 1993. However, the net borrowing in August was smaller than the expected level of GBP 17.6 billion.
The budget forecast for financial year 2009/10 is a net borrowing of GBP 175 billion. In the first five months, PSNB was GBP 65.3 billion. This was GBP 39.1 billion higher than in the same period of financial year 2008/09.
If the current rate of deterioration continues, the government will possibly overshoot its GBP 175 billion spending projection for the current fiscal year, Hetal Mehta, Senior Economic Advisor to the Ernst & Young ITEM Club said. The government's dependency on a strong turnaround in the economy makes their borrowing projections vulnerable to upward revisions.
Central government receipts decreased by an annual 9.2% in August, while the current expenditure increased 2.9%.
The overall government debt stood at GBP 804.8 billion at the end of August 2009, which was equivalent to 57.5% of GDP.
The ONS report showed that the public sector net cash requirement was GBP 10.4 billion in August, a GBP 5.3 billion higher net cash requirement than in August 2008. This was the record shortfall for the month since records began in 1984.
The public sector current budget was in GBP 12.8 billion deficit in August, larger than last year's GBP 7.7 billion deficit.
Decline in tax revenues was due to the recession, whilst social benefits outlays induced higher spending. There is no doubt that fiscal policy needs to be tightened to bring the public finances back to sustainable levels, Mehta said.
According to the British Chambers of Commerce's Chief Economist David Kern, the scale of the challenge facing the nation is huge and should have a credible multi-year plan to reduce the deficit without damaging wealth-creating businesses. It is unavoidable to make painful choices, he said.
Unless the business sector is nurtured and encouraged to take the economy out of recession, the nation will face serious risks of further declines, said Kern.
Chancellor Alistair Darling has started meeting the Cabinet members to plan spending cuts. The BBC reported that the ministers would be asked about the programmes that they think could be avoided and which should be spared.
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