Public sector borrowing in Britain has hit another record high, new figures revealed this morning, putting futher pressure on Alistair Darling to set out plans in the final Budget before the general election to reduce the country's debt mountain.
Public sector net borrowing in December hit £15.7 billion, £1.9 billion higher than previous year and a new record for the month, while the public sector budget deficit also grew £400 million from the previous year, according to figures from the Office for National Statistics (ONS).
While the figures were slightly better than expected, Britain's net debt stood at £870 billion at the end of last year, the equivalent of 61.7 per cent of the UK's gross national product.
Tax receipts were 1 per cent higher than in December 2008 at £30.7 billion. Analysts said that the Chancellor was on course to meet his forecast for £178 billion borrowing in the year to March, with some forecasting that the total could be around £165 billion.
Colin Ellis, European economist at Daiwa Capital Markets, said: "Much will depend on this month's figures - January is typically a bumper month for tax receipts."
But despite the better than expected news, there are still major concerns about the overall state of the public finances.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The less dire-than-expected public finance data for December does not alter the fact that major fiscal surgery is needed for an extended period involving further, and clearer, spending cuts as well as tax hikes.
"Alistair Darling still faces a very difficult March budget as last December's Pre-Budget Report left many questions unanswered over how exactly the Government will return the public finances to health over the medium term."
He added: "While it is likely that many spending cuts and tax rises will not be announced before the looming general election, if the next government fails to address the issues at an early stage, it is likely that the credit agencies and the markets will lose patience, with dire consequences for the UK economy."
Earlier this week, Mervyn King, Governor of the Bank of England, rounded on the Chancellor, urging him to specify sharp spending cuts in his March Budget or risk a damaging backlash from the markets.
Mr King said that the patience of Britons was likely to be “sorely tried” over the coming years, with pay stagnating and inflation threatening to rise above 3 per cent. Britain’s economic health hinges on Alistair Darling being open about how he intends to slash the £178 billion deficit, he said.
A leading credit agency warned yesterday that the Treasury’s plan to halve the deficit within four years was too slow.
Lord Mandelson, the Business Secretary, also underlined the high stakes involved in the pre-election Budget. He warned that Britain, along with the rest of Europe, faced a phase of “rapid relative economic decline” if governments failed to cut spending.
Earlier this week, Fitch, the ratings agency reiterated its warning that the Chancellor's current plans to cut the deficit in half by 2014 was too slow.
David Kern, chief economist at the British Chambers of Commerce (BCC), said: “Action still needs to be taken to ensure that our AAA rating is not threatened. In the forthcoming Budget, the government must spell out its medium-term fiscal plans with greater detail.
"A freeze in the overall public sector wage bill, and efforts to contain ballooning public sector pensions, would enhance credibility and persuade the markets that the government is serious about cutting the UK’s unsustainable deficit, and about enabling business to drive recovery.”