Unexpectedly buoyant tax revenues last month will help the public finances reach the target set for them in last November's pre-Budget report.
Owing to the timing of self-assessment tax returns and their associated tax payments, January is traditionally a surplus month for the Exchequer, and especially so this year with a 12 per cent rise in tax revenues. But this January's surplus of £14.1bn was way ahead of City consensus expectations of £9bn.
The Office for National Statistics was unable to offer an explanation for such an unusual "catch-up" in tax revenues that had previously been relatively weak, but stressed that monthly data can be volatile. Of the £6bn rise in tax receipts, £5bn came from income tax; VAT receipts and corporate taxation barely moved.
Analysts now expect public borrowing to be near the Chancellor's target of £38bn for this year, albeit revised up from the estimate of £34bn issued in Mr Brown's final Budget last spring.
Vicky Redwood, UK eco-nomist at Capital Economics said: "Borrowing remains on course to overshoot the Chancellor's full-year forecast of £38bn by £1bn or so."
However, the cumulative total of borrowing so far this year is running about £4.8bn higher than for the 2006-07 tax year. Public spending is £25bn, or 6 per cent, higher than the same period in the last fiscal year.
Some analysts have suggested that, while better than expected for this month, the public finances remain fragile. Alan Clarke, UK econ-omist at BNP Paribas, said: "The tragedy is that public finances have not done even better. Public borrowing has swelled when the economy has been doing well. With the economy about to fall off a cliff, and limited scope for even wider budget defi-cits, the Government is powerless to come to the rescue of the economy when it most needs the Government's help."
It is widely accepted that the assumption of Northern Rock's liabilities by the state will send public sector net debt as a proportion of the national income over the Government's self-imposed 40 per cent target, to about 44 per cent. It is running at 35.9 per cent at the moment.
An additional complicating factor may further wreck the fiscal guidelines. The Housing Bill going through Parliament endows the Government with such powers over housing associations that some industry observ-ers suggest that, as with the period when Northern Rock was reliant on Government funding and effectively controlled by the state, the ONS may choose to reclassify housing association debt as public liabilities.
Gavin Smart, assistant director of the National Housing Federation, said last night: "Unless the Bill is amended, we are genuinely concerned housing associations will be reclassified as part of the public sector, which means their existing borrowing of £35bn would transfer to the public debt. It would also threaten housing associations' ability to borrow privately, putting at risk 500,000 new social homes."