MoD housing receipts keep PSBR on target

The first figures for government borrowing since the Budget indicated that it was on course to meet its target this year. The upturn in the economy should help keep the public finances on an improving trend for the time being, economists said yesterday.

The public sector borrowing requirement (PSBR) was pounds 2.6bn last month, much as the City expected. The Treasury said this was fully in line with the Budget forecast.

It was welcome news for the Government the day after the Organisation for Economic Co-operation and Development had picked out slow progress on cutting borrowing as its only criticism of the Government's policies in an otherwise glowing report.

There were almost no privatisation proceeds to flatter the headline PSBR figure in November. But the first receipts from the sale of Ministry of Defence housing provided a handy pounds 900m. In one of the Budget's presentational wheezes, this sale of assets is being counted as negative departmental spending rather than privatisation receipts.

Last month's figure brought the PSBR so far this financial year to pounds 13.9bn, just over pounds 1bn better than at the same stage last financial year. The MoD housing sale therefore accounts for most of the year-on-year improvement.

Nevertheless, the City reaction was favourable. "The PSBR is on track this year," said Kevin Darlington at brokers Hoare Govett, although he added that the improvement was due entirely to the economy's cyclical pick-up and that targets for future years would not be met.

Others were more optimistic. "The underlying trends seem fairly healthy," said Ciarn Barr at Deutsche Morgan Grenfell.

Tax receipts as a whole grew 7 per cent year on year, a little better than the Treasury's forecast. Income tax and corporation tax revenues fell during the month after a surge in October. But the only real disappointment was VAT revenues, which at pounds 3.7bn were pounds 295m below their level the previous November despite the strong growth in consumer spending.

The cumulative departmental spending for April to November was 3.5 per cent higher than at the same stage last financial year. This is ahead of the planned 2.25 per cent growth, although the traditional end-year spending surge is unlikely to be as pronounced this year as last.