Gordon Brown will have to reveal a black hole in his finances of anything between £9bn and £14bn, figures published tomorrow will show.
On current projections, the Chancellor, whose wife Sarah gave birth to a baby son on Friday, is going to run into severe difficulties in 2005, which is likely to be an election year.
Tomorrow, the Office of National Statistics will publish its public finance data, which are expected to show a further sharp increase in the public sector current account deficit. The most recent figures for the first five months of 2003 show that the deficit was £14.4bn - up from £7.9bn in 2002.
The Ernst & Young Item Club, the economic forecaster that uses the Treasury's economic model, also publishes its forecasts tomorrow. It predicts that by the end of 2003, the current account deficit will soar to at least £17bn, compared with an April Budget prediction of £8bn.
Even accounting for revis- ions to previous figures pushed through by the Chancellor, this means Mr Brown is on target to breach his so-called "golden rule" that revenues and expenditure should at least balance over the economic cycle in 2005. "He is going to have to raise taxes or cut public spending or, even worse, have to abandon the golden rule in the run-up to an election," said Peter Spencer, the Item Club's economic adviser.
And even that is a conservative estimate. Professor Spencer said the forecast is very cautious: "We are trying to produce figures that the Chancellor will actually announce, if not in the autumn statement then in the Budget." He added that he fears the deficit could be as much as £5bn worse if things do not go the Chancellor's way.
The Institute of Fiscal Studies also warns of similar shortfalls. Though Robert Chote, its director, thinks the Chancellor will take steps to bring the soaring deficit under control, he said that if the trend shown so far this year continues, the current account deficit would be £21bn - some £13bn worse than Mr Brown predicted.
"Since the Budget in April, the Chancellor has been caught in a pincer movement - government spending has been growing more quickly than the Treasury predicted, while tax revenues have been growing more slowly," said Mr Chote. "As a result, the current budget deficit is running at almost twice last year's levels, rather than shrinking as Mr Brown predicted in April."
According to the Item Club, public spending will be about £3bn higher than the Chancellor predicted in the Budget. None of this, though, is due to the Iraq conflict, which is covered by a £2bn contingency fund. It is all caused by higher wages for doctors and nurses as well as increased spending on education.
Tax revenues will be at least £6bn below forecast, as the Chancellor has not allowed for a fall-off in corporate profits and wages paid to City and IT workers because of the recession.Reuse content