Budget deficit 'to hit a record £200bn' - making Britain one of the hardest hit economies in the world

Britain’s budget deficit is heading for a record £200billion after a sharp deterioration in public finances, experts warned last night.



The International Monetary Fund predicts borrowing will balloon to 11 per cent of national income due to a collapse in tax receipts and soaring spending on jobless benefits.



Its forecast is 40 per cent worse than Treasury predictions of a £118billion

deficit for 2009-10 and the worst since official records began in the early 1960s.



Under fire: Chancellor Alistair Darling being grilled by the Treasury Select Committee about the financial crisis yesterday

The report came hours after official figures revealed the Treasury borrowed a record £9billion in February - eight times as much as this time last year. Meanwhile, the national debt soared to £717billion, more than twice the level in 1997.



Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, said: 'Public finances are continuing to deteriorate at an alarming rate. And as the economy continues to shrink, the outlook is bleak.'



Chancellor Alistair Darling told the Commons Treasury Committee: 'The situation has deteriorated quite markedly, but if you look at our debt levels we are better placed than many other countries.'



But Shadow Chancellor George Osborne said: 'These dreadful figures show how Labour has given us the worst public finances in the developed world.'



Economists described the state of the government’s books as ‘dreadful’ and predicted things will just get worse as the recession deepens.



Shadow Chancellor George Osborne called Labour's figures 'dreadful'



Ultimately the vast swathes of government debt will have to be paid back through tax hikes and a draconian squeeze on public spending.



The IMF said the world economy will contract in 2009 for the first time since World War Two, with output shrinking by between 0.5 per cent and 1.0 per cent.



Britain will be one of the hardest hit economies in the world, with analysts at the Economist Intelligence Unit yesterday forecasting a 3.6 per cent contraction this year followed by a 1.1 per cent fall in output in 2010.



Yesterday’s figures revealed a near-10 per cent plunge in tax revenues in February, with corporation tax receipts plummeting 11 per cent.



VAT takings dropped 8.3 per cent, in part thanks to Mr Darling’s decision to introduce a temporary 2.5 point cut in the levy.



Government spending meanwhile jumped 6.5 per cent, in part thanks to the largest jump in jobless benefit claims since 1971.



Appearing before MPs on the Treasury Select Committee, Mr Darling rejected calls to cap the pay of executives in the banks bailed out by the Government.

He said he was not prepared to follow the example of President Barack Obama who has imposed a £350,000 cap on the salaries of executives in banks which have received government cash.

He also said one of his priorities was to ensure that the Government secures a return for the billions it has pumped into propping up the banks.



‘At some stage we have got to make sure we get our money back,’ he said.

He also cautioned that a crack down on bonuses would have an unavoidable impact on the public finances because it would mean lower tax revenues.

'I expect the revenue from bonuses to fall although I to have to say that that is a double-edged thing,' he said.



'It follows that if people are not paying bonuses then less is coming into the Revenue.’



