Brown shrugs off setback in public finances

Gordon Brown has brushed aside figures showing record public borrowing for Mayto hail Britain's "strengthening" economy. The Chancellor of the Exchequer used his keynote Mansion House address in the City of London to issue bullish growth forecasts and fire a warning shot to public sector unions over their pay claims.

He also indicated he would follow Tony Blair's commitment to reforms of the public services if he takes over as Prime Minister.

He was speaking just hours after official figures showed public sector borrowing hit £10.0bn last month, £600m higher than May 2005 and the largest deficit for a May. April's £1.4bn surplus was revised to a £200m deficit.

But the Chancellor told an audience of business leaders and financiers: "Even at a time of global uncertainty, government debt in Britain is lower than France, Germany, Italy, the US and Japan. Growth in Britain is ... expected to be stronger this year than last and stronger next year than this."

He reiterated his determination to ensure public-sector wage deals were based on his 2 per cent inflation target. He said the Government and the Bank of England would maintain their "anti-inflation discipline".

The Chancellor also laid out his long-term agenda, focusing on the need to press ahead with reforms of public services and allocate money for long-term investment. He said the Government would resist the temptation to "cling to the past" or sidestep difficult choices. "In the next year we will seek to build a national consensus necessary in infrastructure, transport, planning and energy and welfare."

He said the Government would shortly publish the findings of the review into the planning system, carried out by Kate Barker, which would make the process "more flexible and more responsive". He said Sir Rod Eddington, the Government's senior transport adviser, would work with businesses to agree long-term transport and infrastructure needs.

Sir Rod, who will deliver his report before the July recess, is expected to back a new high-speed North-South rail link as well as improvements to the existing network. The Chancellor will effectively lay out his spending plans for the next Parliament in next summer's comprehensive spending review for 2008 to 2011.

The Office for National Statistics said spending rose at almost double the pace of receipts.