National Debt Will Hit £1.5 Trillion

(Telegraph) – BRITAIN’S NATIONAL DEBT will hit £1.5 trillion after the Government was forced to increase its borrowing plans again.

In his pre-Budget report, Alistair Darling, the Chancellor, set out plans to borrow almost £800 billion over six years after the sharpest economic contraction in modern history inflicted more damage on the public finances.

Mr Darling said his plans for tax rises and spending curbs will halve the Government’s annual deficit over four years.

But Treasury figures show that the accumulated stock of outstanding Government debt will go on rising for at least six years.

Figures in the Treasury’s pre-Budget report documents reveal that in 2014/15, the national debt will be £1,473 billion. That is 77.7 per cent of gross domestic product

The debt currently stands at £798 billion, or 55.6 per cent of GDP.

Servicing the Government’s growing debt will cost increasing amounts of money.

Debt interest will cost £30.7 billion this year. That is £3.5 billion more than the Treasury had expected.

Next year, debt interest will be £44.8 billion, a £1.5 billion increase and more than the operating budget of the Ministry of Defence.

Earlier this year, Mr Darling set out plans for the biggest programme of borrowing ever undertaken in peacetime.

Today, the Chancellor admitted that weaker-than-expected growth figures have forced him to raise his deficit figures still further.

In 2009/10, the Government will spend £178 billion more than it raises in tax, Mr Darling said. That is £3 billion more than the record-breaking figure he forecast at the Budget in April, and equal to equal to 12.6 per cent of the entire UK economy.

Next year, borrowing will also be higher, at £176 billion.

In total, from this year until 2014/15, the Government will spend £789 billion more than it raises.

In the Budget in April, Mr Darling said the economy would shrink by 3.5 per cent. Yesterday, he admitted the decline will be 4.75 per cent, the worst since the Second World War.

But when he listed the contractions in other leading economies, he gave the figures for the entire downturn, saying that Germany has shrunk 5.6 per cent and Italy 5.9 per cent.

On the same basis, the “cumulative economic contraction” of the UK is 5.9 per cent.

George Osborne accused Mr Darling of a “sleight of hand” over the figures.

Mr Darling said he is sticking to his forecast of growth next year between 1 per cent and 1.5 per cent. In the following two years, it will be 3.5 per cent, he said.

“I am confident that the UK economy will start to grow again by the turn of the year,” Mr Darling said. “Whilst I am confident that the UK economy is on the road to recovery, we cannot be complacent.”

Treasury officials said the “paper loss” the Government has suffered on its shares in RBS and Lloyds Banking Group was the main cause of the increased borrowing.

Despite the sharp economic slowdown, the Treasury still expects tax revenues this year to be higher than it forecast at the Budget: revenues from stamp duty and VAT have exceeded expectations, as house prices and retail sales have remained robust.

Social security costs are slightly lower than the Treasury expected, because unemployment has not hit 3 million.

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