George Osborne is drawing up plans for ?nuclear? spending cuts this autumn after ?terrible? borrowing figures showed the country has plunged deeper into the red.

The Chancellor has resisted calls to draw up a Plan B for the economy, but senior civil servants say the Government is working on ?Plan C? to prevent a multi-billion-pound black hole opening in the public finances.

Official figures showed the Government borrowed ?557million last month as a dramatic slump in tax receipts and a surge in spending on benefits punctured the Chancellor?s economic plans. The grim news sent shockwaves through the City and Westminster, where experts had predicted a surplus of ?2.5billion.

The national debt soared to ?1.03trillion ? or more than ?41,000 per household ? compared to ?940billion a year ago and less than ?400billion a decade ago. Senior Treasury officials admitted that could mean further spending cuts in November?s autumn statement.

Mr Osborne is planning to announce a major housebuilding programme when Parliament returns next month. As well, the Government may reform the Highways Agency so it can borrow money to spend on roads, boosting the economy and reducing congestion.



The agency, which runs the network of motorways and A-roads, could be made a government-owned company or public trust, allowing it to borrow large amounts without increasing the public deficit. Earlier this year the Government suggested plans to privatise roads, creating new tolls roads and ?Lexus lanes?, where wealthy motorists can pay to beat jams.

Whitehall officials say the Treasury has told Government departments to prepare a fresh round of savings. One senior civil servant said: ?The ideas being kicked around are the kind of unmentionable economies that would make your eyes water.

?The Treasury is reaching for the nuclear bunker plans to deal with a liquidity crisis. There simply isn?t enough money coming in.

?You will see the kind of cuts that they have had to push through in Ireland and Greece. Nothing is off the table.

?This isn?t Plan B. We already have a Plan B and it isn?t working. That was to get the banks lending and move on big infrastructure projects. It?s not? happening. Now we?re into Plan C territory, which means more retrenchment.?

Senior Treasury officials say the full picture won?t be clear until October, when the independent Office of Budget Responsibility delivers a critical ruling that will determine whether the Treasury has to borrow billions more or take an axe to public spending. A source close to Mr Osborne said: ?We won?t know the full situation until October?, and added: ?The Treasury always prepares contingency plans.?

In a fresh blow to Mr Osborne a new ComRes poll for ITV News at Ten showed confidence in the Chancellor at an all-time low. Just 16 per cent of voters trust him to see the country through the current crisis against 62 per cent who do not trust him.

Yesterday?s figures also provoked a renewed bout of sniping from Liberal Democrats, many of whom want to see the Chancellor change course. Lord Oakeshott, the party?s former Treasury spokesman in the Lords, called on the Government to stimulate the? economy with ?two real big bazookas? ? a housebuilding programme and measures to get banks lending again.

He said: ?I?m afraid just firing off scattergun shots at the target won?t work. We are in danger of slipping down into a sort of vicious cycle, whereby no growth then means the deficit gets worse, then people talk about cutting again. That really would be self-harm.?

Yesterday?s figures were particularly worrying because July is usually a bumper month for the public finances ? there was a surplus of ?2.8billion last year, meaning the State repaid rather than borrowed money.

But tax receipts were 0.8 per cent lower than a year earlier while government spending rose 5.1 per cent. Benefits payments jumped 6.2 per cent.

And in another blow to ministers, the Institute of Directors blasted the ?ineffective? government. Economist Graeme Leach said: ?Business is battening down the hatches in the expectation that the recession will continue for the rest of the year. Low confidence leads to delayed decisions, and delayed decisions further undermine economic confidence ? it?s a vicious cycle.

?If the Coalition wants to break this cycle of low economic confidence, then they need to take some bold steps.?

Labour Treasury spokesman Rachel Reeves said: ?This is a damning indictment of a Chancellor who promised to secure the recovery and get the deficit down. His failed plan has delivered the exact opposite.?

A Treasury spokesman said: ?The Government remains committed to the credible plan we have set out to deal with Britain?s debts.’


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