UK debt soars to record €1.19trn

The UK’s debt mountain today smashed through the £1trn (€1.19trn) barrier for the first time in history.

The grim milestone, equivalent to some £16,400 (€19,600) per person in the UK, was reached despite a bigger-than-expected fall in borrowing in December as the Government’s austerity measures increasingly kick-in.

Public sector borrowing, excluding financial interventions such as bank bailouts, fell £2.2bn (€2.6bn) to £13.7bn (€16.4bn) in the month. The City had expected it to fall to £14.9bn (€17.9bn).

But this was still enough to drive net debt to £1,003.9bn (€1,204.2bn), or 64.2% of GDP, up from £883bn (€1,059bn) a year ago, and its highest since records began in 1993.

A Treasury spokesman said: “That our national debt has reached more than £1trn (€1.19trn) simply shows the unsustainable level of spending this country built up over the past few years, and shows why it is critical for our nation’s future that we deal decisively with the deficit.

“Today’s figures show that we are making good progress, with borrowing over £11 bn (€13.1bn) lower than in the same period last year.”

It means the UK is one of a small number of countries measuring its debt in trillions rather than millions, including the US, Italy and Japan.

It is understood that the Government’s debt will fall back below the £1trn (€1.19trn) barrier in January as its coffers are swelled by increased tax returns. But debt is expected to push back back past £1trn (€1.19trn) in February.

The Government’s £1trn (€1.19trn) debt figure excludes financial interventions but when these are added, net debt hit £2.3trn (€2.75trn) in December, which is 149% of GDP, and reflects the impact of taking a stake in some of the UK’s largest banks following the credit crunch.

Central Government spending fell in December, while the tax haul rose with the help of last year’s rise in VAT to 20% and the levy on banks’ balance sheets. It is the fourth month in a row that borrowing has fallen on the previous year.

But December’s fall was partly offset by a £1.3bn (€1.55bn) increase in estimates for borrowing between April and November after local Government spending was revised upwards.

However, Chancellor George Osborne is still on track to hit a target set by the Office for Budget Responsibility to reduce borrowing to £127bn (€152.3bn) in the financial year.

The Government borrowed a total of £103.3bn (€123.9bn) between April and December, which is £11.3bn (€13.5bn) lower than the previous year.

But there are fears that the deficit reduction plans may be derailed, with many economists expecting another recession, which would hit tax revenues and increase spending on benefit payments.

The Office for National Statistics will tomorrow release GDP figures for the final three months of 2011, with many expecting the economy to have contracted in the quarter.

Vicky Redwood, a UK economist at Capital Economics, said the figure was a reminder of the “enormity of the challenge that still lies ahead to get the public finances back on a sustainable footing”.

She fears that weaker growth than the OBR is currently forecasting will make future borrowing forecasts much harder to meet.

“So far, it has been weaker spending growth helping borrowing to fall, whereas tax receipts are falling short of the fiscal forecasts,” she added.

Labour’s shadow chief secretary to the Treasury Rachel Reeves said: “By pushing unemployment up to a 17-year high and choking off the recovery over a year ago, well before the recent eurozone crisis, the Government’s reckless decision to raise taxes and cut spending further and faster has completely backfired.

“Of course we need tough decisions on tax, spending and pay to get the deficit down but it’s also vital we get people off the dole and into work.”