Fastest rise in spending since Wilson era puts Brown's golden rule at risk

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The Independent Online

Government spending is rising at the fastest rate since Harold Wilson was Labour prime minister almost 30 years ago, figures showed yesterday.

Government spending is rising at the fastest rate since Harold Wilson was Labour prime minister almost 30 years ago, figures showed yesterday.

The surge in Whitehall expenditure helped push economic growth to a four year-high but put Gordon Brown in greater danger of breaking his "golden rule" on balancing the public finances. Day-to-day spending by government departments grew at an annual rate of 5.7 per cent in the first quarter of the year, the fastest rate of increase since the first three months of 1975.

The increase contributed to a £4bn higher public sector deficit for the fiscal year to March than the one announced by the Chancellor in the Budget. The shortfall hit a nine-year high of £37.2bn rather than the £33bn Mr Brown announced in March.

The Office for National Statistics said the Government's surplus on current budget average over the economic cycle - the key test for the golden rule - had fallen to £2.3bn from its first estimate of £8.9bn. According to the rule that the Chancellor set when Labour won power in 1997, the Government must not borrow to pay for non-investment spending.

Meanwhile, the results of a review of the way public sector output is measured found that the output of the NHS was higher in every year since 1999. It found growth was above 4 per cent a year between 2001 and 2003 compared with estimates of between 1.9 and 2.6 per cent. The ONS said it had changed the way it calculated the contribution the NHS makes to economic output to give greater weighting to more complex medical procedures.

The Government received a separate boost from a revision to the latest estimate of growth. GDP growth in the first quarter of this year was revised up to 0.7 per cent from 0.6 per cent. This took the annual rate to 3.4 per cent, the strongest rate since spring 2000. Analysts said the revision would add to calls for another rise in interest rates.

The ONS also said Britons saved less for their retirement last year than previously thought. It slashed estimates of contributions to funded occupational pensions in 2003 from £39bn to £27bn.

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