By Edmund Conway and Andrew Porter
Published: 10:23AM GMT 05 Dec 2009
The Government is now facing the biggest peacetime deficit in history, and ministers will next week confirm they are likely to borrow close to £180 billion this year – the equivalent of the entire NHS and education budgets combined.
Alistair Darling, the Chancellor, will say in his pre-Budget report that the deficit is higher than expected because income tax receipts have been directly hit by the fall in wages.
Between April and October, the amount the Treasury received in income tax fell by 16 per cent – more than £17 billion – compared with the same period in 2008.
The Treasury calculates that 1.7 million people who might have been made redundant in the recession have been saved from the dole queue by taking a pay cut or shorter hours.
“This wage restraint is the reason why, in bald terms, there has been lower unemployment,” one Treasury official said. “But the price we have paid is we have had less money coming in and therefore higher borrowing.”
Officials have calculated that in the past year a third of all pay settlements between workers and their companies, affecting up to 10 million employees, were for pay freezes or below-inflation increases of a mere 1 per cent.
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