Public finances achieve £8bn July surplus

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The Independent Online

The public finances achieved a record surplus for a July, according to figures yesterday that raised speculation the strength of the economy will deliver Chancellor Gordon Brown a huge pre-election "war chest".

The public finances achieved a record surplus for a July, according to figures yesterday that raised speculation the strength of the economy will deliver Chancellor Gordon Brown a huge pre-election "war chest".

A surge in tax receipts delivered a surplus of £8.04bn last month - the best performance since records began in 1984 - after a £7.5bn deficit in June.

The surplus was much larger than forecast, increasing the chances that the final figure for the year to April will be better than the Treasury's conservative target. So far, the cumulative surplus is £19.38bn compared with a deficit of £63m at the same time a year ago.

Even the Treasury's preferred measure, which smoothes out the impact of one-off factors such as the £22.5bn raised by the third-generation mobile licences, showed a surplus of £6.6bn.

Public sector net borrowing is in surplus to the tune of £2.33bn for the first four months of the fiscal year compared with £332m at the same point in 1999.

In the Budget, Mr Brown forecast a surplus of £6bn for the year to April 2001. The previous year delivered a surplus of £18bn, despite a forecast of a £3bn deficit.

Adam Cole, an economist at HSBC, said: "The outcome for the year as a whole is likely to be at least £5bn better than the Treasury forecast."

According to the Treasury's monthly survey of independent forecasters, the City expects a surplus of £10.6bn, with the most bullish forecaster - Barclays Capital - pencilling in £23bn.

The breakdown of the figures showed the record surplus was based on buoyant tax receipts and restrained government spending. Total revenue rose to £32.9bn from £30.4bn a year ago while current expenditure was unchanged at £25.5bn.

The Treasury pointed out that July always benefits from the timing of payments of corporation tax, self-assessed income tax and VAT.

HSBC's Mr Cole warned that the position relative to last year was unlikely to go on improving at this rate, as government spending started to accelerate.

Meanwhile, there was fresh evidence of a gradual slowdown in the housing market from mortgage lending figures published yesterday. The British Bankers Association said home loans rose by £1.20bn in July, the smallest rise for five months. The Council of Mortgage Lenders, which includes non-bank institutions, said the total fell to £7.1bn from £7.7bn. Michael Coogan, director general of the CML, said: "The slowdown in lending confirms other evidence that the market is cooling."

James Carrick, UK economist at ABN Amro, said the Bank of England would be "comforted" by signs of a slowdown in mortgage demand.

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