British Treasury chief Alistair Darling presents the government’s budget on Wednesday, with his options constricted after pumping billions into stabilizing a foundering economy.
Some tax breaks intended to stimulate spending may be introduced or continued, but the government’s mounting debt has sown caution about any further big gestures — and some sort of tax increases appear inevitable.
Economists’ forecasts for the rise in borrowing for each of the next two years range from around £150 billion to £175 billion. That could push the budget deficit to as much as 12% of GDP, the highest since World War II.
During the last recession in the early 1990s, debt peaked at 8% of GDP, but that downturn was nothing like this one.
Since Mr. Darling presented his previous budget, the Treasury has had to rescue Royal Bank of Scotland Group PLC, taking a more than two-thirds stake in the business, and take a majority stake in Lloyds Banking Group PLC, which got into trouble after a government-encouraged takeover of Halifax-Bank of Scotland.
The government spent £37 billion ($54.28 billion) to shore up those banks, and has insured £585 billion worth of their most risky assets.
The International Monetary Fund reported Tuesday that the cost of stabilizing the financial sector in Britain may reach 12% of GDP.
Mr. Darling also faces intense political pressure to please as many people as possible, with a national election just a year away. Home builders, the auto industry, savers and pub owners are among those clamoring for relief from the impact of a downturn that, the government insists, was born in the U.S.
