Comment: Missing millions save Clarke in the nick of time

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The Independent Online
It looks like the Chancellor's luck is in again. After months and months of disappointing figures on the state of the Government's finances, the ones published yesterday just a week ahead of the Budget were not simply good, but good enough to set the borrowing requirement back on track to meet its target for the year. Last year's "missing millions" in tax revenues have reappeared in the nick of time.

In line with Mr Clarke's statements of prudence about the scope for tax cuts, the Treasury is careful to point out that some of the reasons for the surge in tax revenues in October were one-off. The Government is keen to make sure expectations of next week's giveaway remain modest. If the chaps in the City think only pounds 2bn is on the cards, then pounds 3bn will look both generous and affordable at the same time.

Quite a number of Conservative MPs would like bigger tax cuts so as to put more "blue water" between the Government and Opposition, and put Labour on the spot over reversing them if it wins the election. But from an economic perspective, such action would be pure folly. Mr Clarke should not be thinking about any net reduction in taxes at all, so bad is the underlying state of the Government's finances.

During his three-and-a-half years as Chancellor, the PSBR has certainly fallen very steeply, but given that this has also been a period of sustained economic recovery, not by as much as it should have done. Over the years, the Conservatives have utterly failed to match tax cuts with sustainable reductions in spending.

The fact that the public finances are likely to improve significantly during the months before the election, thanks to the effect of the fast pace of economic growth on tax revenues, should not be allowed to obscure the long-term trend. Mr Clarke sometimes takes pride in his lack of interest in technical detail, but he is well able to tell the difference between a cyclical improvement and an underlying structural problem. Lowering taxes by any amount next week will be a cynical act which either he or his successor is going to have to reverse after the election.

A cyclical fall in the Government's borrowing requirement would give any new Labour Government a short breathing space. But the unlucky Labour Chancellor would eventually have to sort out the mess he inherited from Lucky Ken.