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