UK deficit 'more than predicted'

The government may have to find an extra £39bn a year by 2016 to bring borrowing under control, the Institute for Fiscal Studies (IFS) says.

This is on top of the £38bn of fiscal tightening the chancellor announced in the pre-Budget report (PBR).

If the money were raised entirely through tax-raising measures then families would face an average increase of £1,250 in taxes a year.

Alistair Darling is due to present his Budget on 22 April.

He has warned that the recession will be more severe than forecast.

He may also be forced to revise his forecast for public sector net borrowing, with the IFS forecasting that the budget gap could reach £150bn a year (more than 10% of GDP) over the next three years.

He and Gordon Brown will meet the Bank of England governor later to discuss measures agreed at the G20 summit.

Rising debt burden

The IFS has also warned that the total burden of outstanding government debt may continue to rise for the foreseeable future.

It predicts that the total stock of government debt, which is already over the government's previous target of 40% of GDP, could double to more than 80% of GDP by 2016.

While government says that net debt will gradually fall back towards the 40% level, the IFS says that total debt could stabilise at between 80% and 90% of GDP, which is similar to the level of Italy.

In making its calculations, the IFS assumed that the government would ultimately have to cover bank losses of £130bn using estimates prepared by the International Monetary Fund, which have so far not been included in the government's calculations.

Tax question

The IFS says that to raise the £39bn without raising any taxes, there will need to be a five-year real freeze in total public spending.

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The government intends to achieve the fiscal tightening announced in the PBR mainly through a reduction in spending.

Shadow chancellor George Osborne told the BBC the Conservatives had not ruled out further tax rises although they would seek to avoid them.

They would be looking for restraint on spending, he said.

Global deal

Last week, leaders of the world's largest economies reached a deal to tackle the global financial crisis with measures worth $1.1 trillion (£681bn).

Institute for Fiscal Studies IFS research: Budget 2009 - Tightening the squeeze? [196KB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here

Resources available to the International Monetary Fund (IMF) will be tripled to $750bn; there will be sanctions against secretive tax havens and tougher global financial regulation; and about $250bn will go into boosting global trade.

Downing Street said the prime minister was "clear that the consensus reached at the G20 last week will make a difference to the lives and to the aspirations of families and businesses in the UK".

The meeting would "help to ensure that the new regulation and supervision agreed at the summit is effected in Britain so that people can have confidence in the banks, and that British companies can access the trade finance that is being made available", a spokeswoman said.

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