UK 2009-10 Budget: Govt borrowings to surge 11 per cent of GDP

The UK's Chancellor Alistair Darling is expected to announce record government borrowing in his 2009-10 Budget, which will be tabled tomorrow.

The government borrowing is likely to shoot up to about 11 per cent of gross domestic product (GDP) this year from about £95 billion ($140bn) in 2008-09.

This would be the highest figure since the Second World War, and well above the level for any other leading industrialised country apart from the US, say analysts.

The 2008-09 borrowing itself was about £17 billion more than anticipated in the pre-Budget report last November.

According to the Institute for Fiscal Studies (IFS) the government may have to find an extra £39 billion a year by 2016 to bring borrowing under control.

If the money were raised entirely through tax-raising measures then families would face an average increase of £1,250 in taxes a yea, or there will need to be a five-year real freeze in total public spending.

The government intends to achieve the fiscal tightening mainly through a reduction in spending.

Business Secretary Lord Mandelson said borrowing was growing as a result of the recession but sustained public spending and investment in the economy were necessary.

The IFS has also warned that the total burden of outstanding government debt may continue to rise for the foreseeable future.

The total stock of government debt, which is already over the government's previous target of 40 per cent of GDP, could double to more than 80 per cent of GDP by 2016.

Though the government says that net debt will gradually fall back towards the 40 per cent level, IFS says that total debt could stabilise at between 80 and 90 per cent of GDP.

In making its calculations, the IFS assumed that the government would ultimately have to cover bank losses of £130 billion using estimates prepared by the International Monetary Fund (IMF).

Tomorrow's budget will outline the government's plans to "invest our way out of this downturn," said prime minister Gordon Brown.

The Treasury will publish its reports today setting out how "efficiency savings" in Whitehall could help pay for some government spending plans.

Housing to get £1 billion
The Chancellor is also expected to announce a £1 billion package to support housing in this year's Budget.

The government is set to provide money for construction sites where work has stopped because of funding problems and for building council houses.

A stamp duty ''holiday'' on homes costing up to £175,000 will also be extended by three months to the end of the year.

Tomorrow's moves are seen as desperately needed if the government is to reach its target of building 240,000 homes a year by 2016. The number built in 2008-09 was 207,000, but that figure is falling drastically.

In a separate move, up to 40,000 homeowners who have lost their jobs or had a sudden loss of income are expected to be helped under the Homeowner Mortgage Support Scheme to be launched today.

The chancellor yesterday said the Budget would focus on providing jobs and helping industries.

The other Budget announcements may include a car scrapping scheme - in which people are paid to trade in older cars and buy new ones - a scheme for businesses struggling to get credit insurance and possible tax changes to help savers.

IFS, however, warned that Darling's plan, announced in the pre-Budget report, to introduce a new 45 per cent tax rate on earnings over £150,000 from April 2011 was "very unlikely" to raise the £1.6 billion a year.