Pensions move brings Treasury boost


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The Independent Online

The transfer of Royal Mail pensions into the public sector gave the Government's finances a one-off boost today, offsetting a larger-than-expected surge in borrowing last month.

The Treasury achieved a £16.5 billion public sector net surplus in April - that is revenues were higher than spending - after a £28 billion lift from the value of assets transferred from the Royal Mail pension plan. This compares to £9.1 billion borrowing in April last year.

But excluding the one-off Royal Mail impact, the Government actually recorded public sector net borrowing, excluding financial interventions such as bank bailouts, of £11.5 billion - £3 billion higher than City forecasts.

Elsewhere, Chancellor George Osborne's deficit-busting plans were helped as total borrowing for 2011/2012 was revised down by £1.6 billion to £124.4 billion, meaning a reduction of more than £12 billion over the year.

A Treasury spokesman said: "Despite the challenges the recovery is facing from the eurozone and elsewhere, the Government is making good progress in dealing with the deficit."

He added that the £28 billion one-off boost to the public finances from the Royal Mail pension assets would be used to pay down debt rather than fund extra spending.

Tax and spending watchdog the Office for Budget Responsibility has forecast total public borrowing for 2012/2013 of £120 billion, or £92 billion when the Royal Mail pension plan is taken into account.

However, as April is the first month of the fiscal year, analysts said it was too early to comment on progress made towards that target.

But Howard Archer, chief UK and European economist at IHS Global Insight, said the underlying picture in April "appears weaker".

Tax receipts on production, income and wealth were 0.9% lower as weakened economic growth started to take its toll, while spending still rose 3.8% year on year.

Mr Archer added: "The Chancellor needs the economy to return to growth sooner rather than later if he is to achieve his fiscal targets for 2012/13 and obviously much will depend on events in Greece."

Net debt, excluding financial interventions, was still over the £1 trillion mark, equal to 64.8% of GDP.

Business leaders continued to back the Chancellor's tough austerity measures, which include billions of pounds of spending cuts and hundreds of thousands of public sector job losses.

David Kern, chief economist at the British Chambers of Commerce (BCC), said: "We must stick to Plan A, but it is just as important to reallocate priorities within the current spending envelope so that businesses can drive growth.

"Cutting regulation, supporting Britain's exporters and increasing infrastructure spending are possible within the government's current plan, all of which are crucial to sustaining the recovery."