TREASURY OFFICIALS say further action will be taken to bring down Britain’s public borrowing, set to hit a record 12.4% of gross domestic product – £175 billion – this year.

They insist, however, that measures to cut the budget deficit will be taken over time and worries expressed last week by Standard & Poor’s, the ratings agency, are misplaced.

S&P revised its outlook for Britain’s sovereign-debt rating from “stable” to “negative”, while maintaining the existing AAA status, warning that there could be a subsequent down-grade if measures are not introduced after the general election to rein back borrowing. It warned that public-sector debt could hit 100% of GDP over the next four years.

The International Monetary Fund, in its annual assessment of the UK economy, also warned that without “a more ambitious medium-term fiscal adjustment path”, trust in the sustainability of British policy would be tested.

Treasury officials stress that last month’s budget and the November pre-budget report included significant measures, adding up to an eventual 6.3% of GDP.

These included a new 50% top rate of income tax on incomes above £150,000, to be introduced next year, though most of the deficit reduction was from paring back previous public-spending plans.

But the Treasury’s estimate of Britain’s “structural” budget deficit, 9.8% of GDP, means there is another 3.5% of GDP to go, roughly £50 billion.

Officials said it made no sense to announce all the fiscal tightening measures in the depths of the recession when recovery prospects remain uncertain, but that there would be other opportunities to do so, before and after the election.

If Gordon Brown delays the general election until spring 2010, chancellor Alistair Darling will have both a pre-budget report and a budget in which to announce additional moves.

The government’s two-yearly comprehensive spending review, originally planned for this summer, could still take place in the autumn. However, the Treasury has not embarked on any work for the review, suggesting it will be delayed until after the 2010 election.

John Hawskworth, an economist with Price Waterhouse Coopers, said the government should aim to get public-sector debt back to between 40% and 50% of GDP. He said this could be achieved by spending cuts or tax increases equivalent to as much as £43 billion.

Indicators continue to give mixed signals about whether a recovery for the economy is in sight. A survey by the Chartered Institute of Personnel and Development, to be published this week, is expected to reveal a grim job-market outlook for school leavers and graduates.

Official figures last week confirmed that the economy shrank 1.9% in the first quarter, with a record 1.1% drop in employee incomes. Bank of England data showed that bank lending to both businesses and households remains weak. Four-fifths of the red tape being imposed on British businesses is home-grown, says a new study. The research for the British Chambers of Commerce by Tim Ambler and Francis Chittenden shows that only 20% of new regulations originated from the European Union in the past year, contrary to ministerial claims that Brussels is responsible for the lion’s share.

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