Britain braced for grim Budget as government borrowing soars

Alistair Darling, the UK chancellor, is poised to deliver one of the gloomiest Budgets in Britain's history as the public finances dive deep into the red and recession grips the economy.

Government borrowing is expected to hit about 12 per cent of national income in 2009-10 and 2010-11, forcing Britain to limit any fiscal stimulus at the same time as it urges other countries to do more.

Britain is one of only two Group of 20 countries to plan tighter fiscal policy in 2010 as it begins to rein in the ballooning deficits.

Mr Darling has said his Budget, always a centrepiece of the UK political and economic landscape, will be devoted to "help[ing] people now, through this difficult time".

Some respected economists, such as Ray Barrell of the National Institute of Economic and Social Research, favour "significant and immediate income tax and employers' national insurance rebates" to the scale of 2 per cent of national income, as recommended by the International Monetary Fund. He argued there was no sign, as yet, that financial markets were worried by Britain's level of government borrowing.

But the Treasury is poised to reveal its level of borrowing is far above independent forecasters' estimates, peaking at 12 per cent of gross domestic product, a record in peacetime, and leading to a rapid rise in government debt that makes officials nervous.

Officials have also revealed that the government will put into the accounts a provision for losses from its banking recapitalisation and guarantees, amounting to between 2 and 4 per cent of national income. The provision will only lead to new issuance of government bonds if the UK state insurance of losses in the Royal Bank of Scotland and the Lloyds Banking Group is called upon.

With such large borrowing and Mervyn King, the Bank of England governor, saying publicly that there is no room for anything other than a small and targeted second fiscal stimulus, the Treasury has emphasised that the main focus of the Budget will be to imagine a path back to budgetary -prudence.

Public spending plans were cut last November, with capital expenditure frozen after 2011 and day-to-day expenditure growing by only 1.2 per cent in real terms. These spending plans will be trimmed further, the Treasury has indicated, and the time horizon over which the budgetary consolidation will take place lengthened.

The build-up of debt has enraged opposition Conservative politicians who have called the Budget tomorrow a "day of reckoning" for the unpopular Labour government.

George Osborne, the shadow chancellor, has insisted that the government should cut public expenditure plans further.

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