UK’s public finances in worst shape since 1994

United Kingdom’s public finances chalked up the worst deficit in 12 years during the 2005/2006 fiscal year, official data showed on Monday, dealing a blow to Finance Minister Gordon Brown’s forecasts.

Economists said that the worsening state of the public purse pointed towards likely tax hikes or public-spending cuts in the near future.

The public sector net cash requirement (PSNCR), the public sector’s need to raise cash, showed a total deficit of £41-billion in the twelve months to the end of March.

That marked the highest deficit since the fiscal year 1993/1994, when the deficit had stood at £46-billion, a spokesperson for the Office for National Statistics (ONS) told Agence France-Presse.

The PSNCR for March, meanwhile, showed a record deficit of £16,038-billion, the ONS said.

The release on Monday was bad news for Chancellor of the Exchequer Brown because the figure for 2005/2006 overshot his official target by some 2%, according to economist Simon Hayes at Barclays Capital.

Hayes said that the annual result was close to his group’s forecast of a £15,4-billion deficit.

Meanwhile, public sector net borrowing (PSNB), the government’s preferred measure of the public sector finances, rose over the course of the financial year to £37,818-billion.

The figure was also about 2% higher than Brown’s prediction of £37-billion, made in his annual budget statement last March.

In the budget, Brown had also insisted that his Labour government would meet its golden rule of balancing the budget, excluding investment, over the economic cycle, with a surplus of £16-billion pounds. The economic cycle is thought to end in 2008-2009.

Analysts said that action would now be required to meet that rule.

“We continue to believe that there is a structural deficit at the heart of the public finances, and that significant fiscal tightening will be needed in the next couple of years if the government is to meet its self-imposed fiscal rules,” Hayes said.

The worsening of public finances coincided with a subdued year for the British economy, which grew by 1,8% last year — the slowest pace since 1992 — after 3,2% growth in 2004. The slowdown had an adverse effect on tax revenues.

Jonathan Said, economist at the Centre for Economics and Business Research, added: “The government has failed to reduce its dependence upon borrowing, with tax revenues falling well short of ballooning expenditure for yet another year.”

Brown, who has been chancellor of the exchequer since Labour’s return to power in 1997, is widely regarded as the frontrunner to lead his country when Prime Minister Tony Blair steps down. — AFP

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories


Subscribers only

Ithala fails to act against board chairperson over PPE scandal

Morar asked to settle with the state and pay back the profit he made on an irregular tender

Vodacom swindled out of more than R24m worth of iPhones

A former employee allegedly ran an intricate scam to steal 8700 phones from the cellular giant

More top stories

Feathers fly over proposed wind farm’s impacts on great white...

The project poses a risk to declining great white pelican population at Dassen Island

Covid triggers crypto collectables boom

These one-of-a-kind digital collector’s items are being sold for unprecedented prices

Crisis response and accountability: Should leaders’ gender matter?

Women leaders are lauded for their handling of the Covid-19 pandemic, but the data is often cherry-picked

ANC North West factions fight on

Premier Job Mokgoro’s hearing begins despite move to stop it by party secretary general Ace Magashule

press releases

Loading latest Press Releases…