The falling tax revenues and bailing out of banks has put Britian’s balance sheet in a precarious postsion. Lloyds and Royal bank of Scotland are now considered as public sector entities by the ofdfice of National Statistics. This has added $1.5 trillion of liablities to the country’s balance sheet.

In Jnauary, the treasury reported that the tax receipts took a hit dropping 10% from last year. This amounted to only £54 billion for the treasury in a month which is suppose to be one of the best for collecting tax revenues. The decline in the tax income was acrosss the board. The VAT was down 10% whereas the corpoate tax revenues were down 20% from last year. As a result the repayment of debt for the month of January was smallest by the government in the last 14 years.

An economist, Howard Archer at Global Insight says "Cosidering the rate at which the British public finances are deteriorating, it is frankly anyone’s guess as to how high the public deficits may reach in the next couple of years".

Other economists fear that the Treasury chief Alistair Darling ability to deliver further stimulus to the British economy will be limited, as he would have to further increase his already massive borrowing forecasts for the coming years. As concern mounts over the state of public finances in Britain, the value of government bonds and gilts fell, sending yields higher.

In US there is also a debate raging about classifying bailout recipients as public sector entities. The Obama administration is expected to move the debt of mortgage gaints Fannie Mae and Freddie Mac to the federal budget whereas the Bush government kept Fannie Mae and Freddie Mac off the federal books. This would add huge sums to the federal deficit.

According to government figures the net borrowing of the public sector in the fiscal year to Jnauary stood at £67.2 billion, compared to £23.1 billion in the year-earlier period. The is the highest figure since records began in 1993.

The government spending in the month of January totalled £45.5 billion, up 6.6 per cent from £42.7 billion the previous year. This includes an increase of £13.5 billion in social benefits, such as unemployment insurance. On of the biggest costs in public borrowing has been the attempt to bail out the banking system. This impact was underscored by the classification of Lloyds and RBS as public sector entities, as Britain now effectivly controls the two banks via government bailouts.

According to the statistics office the current debt load of the government is at 1.5 trillion which is equal to the country’s gross domestic product. But the government liabilities are likely to more than double this figure. However, Moody’s Investors Service has said that this will not effect Britain’s triple-A credit rating. But as the British economy slides deeper into recession and the government’s efforts appear inadequate, many economists expect the government would have to make even more spending announcements.