Chancellor's gamble will see borrowing balloon to £118bn
Chancellor Alistair Darling and his Treasury team leave the Treasury building in Westminster yesterday
Related Articles
Chancellor of the Exchequer Alistair Darling said yesterday that Britain's public borrowing would balloon to £118bn (€139m) in the next financial year, about 8pc of GDP and way above the £38bn (€45bn) he forecast in March.
In his pre-budget speech, Mr Darling warned that taxes will have to be increased later to pay for the boost.
He slashed his economic forecasts to 0.75pc growth this year and to a contraction of between 0.75pc and 1.25pc next year. In March, he foresaw growth of about 2pc this year and around 2.5pc in 2009.
He told parliament he would cut sales tax and extend help for small businesses, low earners and households in a package worth some £20bn (€23bn) -- over 1pc of gross domestic product.
"These are extraordinary, challenging times for the global economy. And they are having an impact on businesses and families right across the world," Mr Darling said.
The Conservative Party called the plan, which it said would push national debt towards £1trn, a "borrowing binge".
Some analysts also expressed concern at the plan. "We are massively concerned that it's a question of live now, pay later and we don't think the strength of the economy warrants it," said David Buik, analyst at BGC Partners.
Darling's fiscal boost is being matched, in some shape or form, across much of the world as the global economy turns sour.
The European Commission will present plans tomorrow to boost the EU economy, and US President-elect Barack Obama has laid the ground for a massive new US stimulus package, combining middle-class tax cuts and infrastructure spending.
To persuade markets the government will balance the books once the economy improves, Mr Darling announced plans for deferred tax rises and public spending curbs.
One measure included a new 45pc income tax rate on individual earnings of over £150,000 (€176,000) if Labour wins the next election, up from the current top rate of 40pc.
The move will not be a major earner for the government but carries huge political symbolism, breaking a pledge that formed the backbone of Labour's revival in the 1990s not to raise taxes on high earners.
Darling also unveiled a planned rise in national insurance contributions from 2011, which will raise £5.4bn (€6.3bn) a year for the Treasury and hit all but the lowest paid.
VAT sales tax will be cut to 15pc -- the lowest level allowed by the European Union -- from 17.5pc, boosting consumers' spending power before Christmas, although retailers doubted how much benefit that would bring. (Reuters)
