UK facing 12 per cent Budget deficit

Crunching the numbers: The UK's budget deficit far exceeds other countries and government debt is set to spiral

Up to £5bn worth of government-funded credit insurance was one of a number of measures designed to safeguard the UK's ailing economy and jobs market announced in today's Budget.

Chancellor of the Exchequer Alistair Darling forecast that the UK economy would shrink by 3.5 per cent this year. This follows his more upbeat prediction in November's pre-Budget report that the reduction would be little more than one per cent.

Today he claimed growth would return next year, bullishly predicting the economy would expand 1.25 per cent in 2010 and an annual 3.5 per cent thereafter. Public borrowing is set to hit an eye-watering £175bn this year, amounting to 12 per cent of GDP. It will drop slightly to £173bn next year and then £140bn, £118bn and £97bn in subsequent years.

The 12 per cent deficit greatly exceeds that in the US, Japan, France, Italy and Germany, all of which have a deficit of less than 10 per cent. Total government debt is also expected to spiral over the next five years, rising from its current level of 59 per cent of GDP to 79 per cent in 2013-14. Darling grimly predicted that the share of debt will not begin to recede until 2015-16, by which time two general elections will have come and gone.

The Chancellor also had bad news for high earners, announcing that income tax for people earning north of £150,000 would rise to 50 per cent in a year's time. Tax relief on pensions is also to be reduced for top earners starting in 2011.

Darling tried to lend a hand to struggling smaller firms, unveiling plans to allow them to reclaim taxes on profits made in the last three years. Additionally, the main capital allowance rate has been doubled to 40 per cent and £750m has been ring-fenced for investment in emerging technologies and regionally important industries.

Giving the sickly UK jobs market a shot in the arm was one of the Chancellor's top priorities, with Darling pledging government support to protect half a million UK jobs. All people under 25 who are long-term unemployed are to be offered a job or training, while the UK's Job Centre network is to be given £1.7bn. Funding to create an extra 54,000 sixth-form places has been promised, as has £250m to help young adults gain work experience in growth industries.

A scheme to provide up to £5bn in extra trade credit insurance for UK businesses was also unveiled. From June until the end of the year, firms suffering from reduced cover can buy a top-up from the government, which will match their existing limit.

The Chancellor also pushed the government's green agenda and committed to reducing UK carbon emissions by more than a third over the next 11 years. He also pledged £1bn to low carbon industries as part of plans to help tackle climate change.

Offshore wind projects are to be given £525m over the next two years, while £435m has been set aside to support energy efficiency initiatives for businesses, private housing and public buildings. Darling also detailed plans to dedicate £405m to encouraging the development of low carbon energy and advanced green manufacturing.

See CRN on Monday for channel views and reaction to the Budget.