Chancellor cheers doubting MPs

A buoyant Kenneth Clarke is shrugging off tax revenue shortfall, writes Diane Coyle

Kenneth Clarke, Chancellor of the Exchequer, raised hopes of both tax cuts and lower interest rates as he told MPs yesterday that the economy was poised for a strong acceleration in growth without any risk of inflation picking up.

In buoyant mood, he shrugged off the shortfall in tax revenues below the Treasury's earlier forecasts which led him to announce big upward revisions in targets for the Public Sector Borrowing Requirement (PSBR) last week.

"A PSBR forecast that is only out by pounds 4.5bn is not bad by historical standards," he assured the House of Commons Treasury Select Committee yesterday. "The key to policy is that borrowing must be kept firmly on a downward path."

Mr Clarke reaffirmed the commitment to bring the Government budget towards balance in the medium term. But he agreed that lower than expected inflation had created some pounds 3.5bn in slack in current public spending plans.

Reducing the spending target be that amount would be more than enough to cut the basic rate of income tax by a penny, provided there is no further slippage in the PSBR.

Mr Clarke said there was no satisfactory explanation of the shortfall in tax revenues below the Treasury's earlier forecasts. But he added that revenues were growing - just not as quickly as he had expected.

"The forecasts are treated ridiculously. They will be quite different this time next year, I guarantee you a pound to a penny," he said.

The Chancellor defended his optimistic outlook for growth in the second half of this year. In new forecasts last week he predicted it would climb from under 2 per cent in the first half of the year to nearly 4 per cent in the second half. "My confident views are becoming ever more widely shared," he said

However, the Chancellor denied that this view was inconsistent with his decision to cut the level of base rates last month. He said he gave most weight to the direction of the real economy in setting interest rates.

"People are warning me of a risk of overheating in the economy when at the moment we are still at a rather low temperature," he said, in a remark sure to be taken as leaving scope for a further cut in base rates.

Mr Clarke and Eddie George, Governor of the Bank of England, are due to hold their next monetary meeting on 30 July. Mr Clarke said he was surprised the Office for National Statistics had not yet revised up its figures for GDP earlier this year, adding that he had decided not to raise interest rates last May because he had not believed the statistics.

This swipe at the figures follows his recent statement that his Treasury "boffins" had made mistakes and his criticism last week of the Bank of England's inflation forecasts. Mr Clarke added insult to injury: "I did not accuse them of bad forecasts. I simply said their forecasts had always been wrong."

PROMOTED VIDEO
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
John Terry, Frank Lampard
footballChelsea captain sends signed shirt to fan whose mum had died
News
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

Robert Fisk on Syria air strikes

‘Peace President’ Obama had to take stronger action against Isis after beheadings
Will Lindsay Lohan's West End debut be a turnaround moment for her career?

Lindsay Lohan's West End debut

Will this be a turnaround moment for her career?
'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

The follow-up to 'The Tiger Who Came to Tea'

Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

BBC Television Centre

A nostalgic wander through the sets, studios and ghosts of programmes past
Lonesome George: Custody battle in Galapagos over tortoise remains

My George!

Custody battle in Galapagos over tortoise remains
10 best rucksacks for backpackers

Pack up your troubles: 10 best rucksacks for backpackers

Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world