Debt hits £1trn milestone

However, the borrowing for the month is more than £2bn less than in December 2010, when it was £15.9bn.

Borrowing for the nine months of the financial year so far stands at £103.3bn, more than £11bn lower than in the same period in 2010/11.

Central government borrowing has fallen by £16.6bn on the year so far, although local government’s has increased by £5.7bn.

The Office for Budget Responsibility said that December’s figure was below market expectations of £14.9bn due to a growth in receipts and a drop in central government spending compared with last year.

There was ‘strong growth’ in VAT tax receipts to the Treasury, although December is the last month that annual growth will benefit from the rise in the standard rate of VAT to 20% at the start of 2011.

Central government current expenditure fell by 0.9% in December compared with a year earlier.

These latest figures mean that Chancellor George Osborne is on track to meet the OBR’s full year borrowing forecast of £127.1bn.

Government spending for the year so far is currently below forecast, with departments set to underspend by more than £250m. However, the report added: ‘There is always uncertainty over the degree to which departments might underspend against plans’.

The figures are published the day after OBR member Stephen Nickell appeared at the launch of the London School of Economics’ Growth Commission, which is examining what the UK’s growth strategy should be.

Nickell told the panel members, which include former head of the Government Economic Service Lord Nicholas Stern and former deputy governor of the Bank of England Rachel Lomax, that the inquiry should examine the ‘the barriers to competition’ in the economy.

These include the planning system and the potential use of private finance in infrastructure, such as toll roads.

He also highlighted the potential for more private suppliers in the NHS as one area where there could be productivity gains that the commission should examine. ‘People say that would be leading us down to an American system, but in both France and Germany the government doesn’t run hospitals. They have private hospitals and by the Organisation for Economic Co-operation and Development measures they’re rather effective,’ he said.

The event also heard from Larry Summers, who was treasury secretary to President Bill Clinton and has also advised current President Barack Obama. Summers warned the commission against attempting to minimise the role of banking in the UK economy.

He called for the sector to be put on a stable footing following the financial crisis so that it was not ‘subsidised by government guarantee’. The economy should be allowed to ‘go with the grain of competitive advantage’, he said, and, and in Britain, this meant financial services.

He said: ‘Where subsidy is not a factor, it seems to me that one should seek to grow one’s exports as long as there seems to be demand for these exports. I would be surprised if it were possible for Britain in the short to medium term to replace the City of London as a major wealth generator.’