Borrowing burden less than expected

THE CHANCELLOR is set to announce a lower-than-expected public sector borrowing requirement this financial year and next in his 16 March Budget.

Preliminary Treasury forecasts point to a PSBR for 1992-3 well below the pounds 37bn predicted in last year's Autumn Statement. Some analysts estimate that the PSBR could be as low as pounds 30bn next year, substantially relieving the pressure for sales of government bonds.

With the Treasury set to make fewer demands on the capital markets than expected, long-term interest rates could stay low or even fall. This would cut the cost of finance to companies and also encourage the bull run in share prices.

The PSBR for 1993-4, which starts in April, may be several billion pounds less than the pounds 44.4bn implied by the Autumn Statement, and the pounds 47bn average expected by 22 independent economic forecasters.

The revelations may come as a surprise to some analysts, who fear a PSBR of pounds 50bn or more in the next financial year. They could also ease international pressure on Norman Lamont to raise taxes or cut spending in the Budget.

Analyses by Keith Skeoch and Adam Cole, of James Capel, and David Owen, of Kleinwort Benson, appear to lend weight to the preliminary Treasury forecasts. The James Capel economists say the PSBR in 1992-3 could be pounds 33bn based on conservative assumptions. 'There is a chance the figure will be closer to pounds 30bn.'

The implication is that the Government may have sold pounds 5bn more gilts in 1992-3 than it needed to, reducing the quantity of government bonds that will have to be sold in the next financial year.

The PSBR in the first 10 months of the year was pounds 21.6bn, or pounds 27.9bn if privatisation receipts are excluded. Borrowing in February and March, the final two months of 1992-3, would have to total pounds 15.5bn to meet the Autumn Statement forecast.

Moreover, the James Capel economists estimate that privatisation receipts of pounds 1.6bn will flood in during these two months, meaning that to achieve the Autumn Statement projection, borrowing would have to be as high as pounds 17bn - or pounds 8.5bn a month.

The James Capel economists believe the result reflects much lower than forecast borrowing by local authorities. So far this year, they say, councils have repaid pounds 7.4bn of debt. Local authority borrowing during the last two months of the two previous financial years was pounds 1.4bn a month. But council finances have undeniably improved since then, because of better collection rates for the poll tax.