Brown suffers pre-Budget blow as public sector borrowing soars

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The Independent Online

Gordon Brown suffered a blow two days before tomorrow's Budget as official figures yesterday showed he was in danger of breaching his forecasts for the public finances.

The Government borrowed the largest amount for a February in nine years last month as a burst of spending combined with a weak month for tax revenues.

Public sector net borrowing jumped to £2.3bn last month, up from £1.4bn a year ago, the Office for National Statistics said. That was the worst outturn for a February since 1997.

The extra debt takes the total for the 11 months of the year to £31.7bn, within £5.3bn of the £37bn target the Chancellor set in his pre-Budget report four months ago. March 2005 posted an £8.5bn shortfall, meaning he is in line to miss his forecasts and breach the £40bn level without a substantial improvement this year.

Howard Archer, the chief UK economist at Global Insight, said: "The disappointing finance figures may slightly dampen the Chancellor's spirits ahead of the Budget. He looks certain to modestly miss the £37bn target."

Spending in February was 8.5 per cent higher than the same month last year, taking the total for the year to date to 5.6 per cent, above the target of 5.4 per cent. At the same time a 5.3 per cent increase in tax receipts, caused by a 0.3 per cent rise in VAT revenues, took the 11-month average to 7.4 per cent, below the PBR forecast of 7.6 per cent.

However, analysts said there was little need for Mr Brown to take evasive action in his Budget, especially as the spending was driven by a surge in investment, which does not score against his cherished "golden rule". The rule says the Government must not borrow to fund current spending when averaged over the economic cycle. The measure of the current budget showed a shortfall of £6.2bn so far this year.

John Hawksworth, the head of macroeconomics at the accountants PricewaterhouseCoopers, said even a £5bn shortfall in March would leave the total at £11bn, rather than Mr Brown's £10bn target. "These numbers should not cause the Chancellor to lose any sleep in the run-up to the Budget. More critical will be whether tax revenues grow as fast as expected in 2006-07."

Douglas McWilliams, the chief executive of the Centre for Economics and Business Research, said Mr Brown faces difficulties on two fronts. "Various areas of public expenditure look underfunded despite recent large rises. These include the NHS and pensions, and he may have to make provisions for these which go beyond his contingency allowances." He said Mr Brown also needed rapid economic growth in the UK from 2007 onwards to bring current borrowing back on balance. "Our own assessment of UK productivity trends and of the world economy suggests this is unlikely."