Britain's vast public debt climbing at a slightly slower rate

Richard Edgar

Former Economics Editor

UK debt continues to grow, but the government's extra borrowing should fall as the recovery gathers pace. Credit: Reuters

Britain’s national debt stands at £1,207,200,000,000.00 (£1.2 trillion) and it’s climbing.

Today we learned the government added another eight billion pounds in October alone. Yet oddly, there is good news to be found in the mind-boggling numbers.

The pace of expansion of that debt is gradually slowing as the economy improves. Consumers are spending more, so there was an extra £600 million income for the government from VAT in October. Meanwhile the booming property market means stamp duty rocketed almost 46% or £400 million.

It’s all cash rolling in to the government’s coffers to offset some (but not all) of its spending.

After digesting the numbers, economists reckon that the government’s extra borrowing for the year could fall from almost £120 billion forecast back in March to £105 billion - or even lower if the recovery gathers pace. This is very welcome for the Chancellor who staked his reputation on bringing the country’s finances under control.

But is this a signal to let up on austerity and spend?

After all, the Chancellor is the Conservatives’ election strategist and nothing warms the hearts of voters than a few choice giveaways before they step into the polling booth.

In only two weeks’ time he’ll have a chance to announce spending plans in his Autumn Financial Statement.

There are two reasons why this might not happen. The first is that the country’s finances, whilst improving, are still pretty ghastly. The figure at the top of this piece is almost exactly three quarters of the size of Britain’s entire economy.

The extra being added each year, the deficit - even if it falls to £100 billion in 2013/2014 - will still be way off Mr Osborne’s own forecast for the year of £60 billion which he made in his first budget in 2010.

That shows just how far off track the economy is. Andrew Haldenby, director of the think tank Reform, told me today he would urge the Chancellor “not to listen to the siren voices calling for extra spending.” He went on:

Britain is only in year three of a 15 or 20 year process to tackle first the deficit and then the debt. I don’t think anyone should get carried away.

The Institute for Fiscal Studies makes similar points in a short paper released this afternoon.

Mr Osborne promised during the party conference to eliminate the entire deficit by the end of the next parliament in 2020. Yet even with austerity and spending cuts he’s planned up to 2018, there will still be £42 billion deficit that year.

Coalition promises which may pop up in the chancellor's speech (free school meals, tax allowances for some married couples and a freeze on fuel duties next year) would cost about £2 billion a year, according to the IFS.

Mr Osborne may have to find other ways to pay for them.