Record £15bn government surplus fuels demands for more pre-election spending

Britain's public finances are in their most robust state since records began, according to figures that will add to pressure on Gordon Brown to use his "war chest" for a pre-election package of tax cuts and extra spending.

Public sector net borrowing for the financial year to March showed a surplus of £15bn, almost £11bn better than the previous year's £4.1bn and the best since 1963, a report published yesterday said. It also beat the Chancellor's forecast for £12bn in last month's Budget.

The public sector net cash requirement, the City's preferred measure, was in surplus by £8.8bn, compared with £7.0bn for the previous financial year and the strongest since 1989/90.

The figures present a dilemma for the Chancellor, who must ensure that any hikes in spending or cuts in taxes do not overheat the economy and force the Bank of England to raise interest rates. The Treasury is still smarting from criticism by the International Monetary Fund which said the Budget was "regrettably pro-cyclical" - boosting the economy when it should have helped slow growth.

Jonathan Loynes, an economist at HSBC, said: "Official borrowing forecasts could once again undershoot over the next 12 months, giving Mr Brown the chance to announce further tax and spending measures in next year's Budget, which may well be the last ahead of the General Election."

But a Treasury spokesman said much of the forthcoming spending plans had been laid out in the Budget."These figures underline the strength of the fiscal policy and the prudent stance of the Budget," he said.

The Government has already made clear that the proceeds from the auction of mobile phone licences - £22.2bn and rising - would be used to repay public debt, which stands at £339.4bn, equivalent to 36.8 per cent of gross domestic product.

Fears over rate hikes were heightened by new figures indicating the consumer economy shows no sign of slowing. The pound surged on the data, piling on the pain for industry.

Private-sector lending rose £17bn last month, way above forecasts, including a record £10.5bn rise in bank lending. The picture was confused by £4.7bn of repo lending - a technical sale and repurchase of a loan - while mortgage lending growth slowed.

Steven Pearson, an economist at Halifax, said the data were still "quite strong", adding: "That will provoke concerns that the housing market is not cooling." Geoffrey Dicks, of Greenwich NatWest, said personal lending had been "swollen" by a rush to complete home sales ahead of the Budget.

Further evidence of the strong consumer and housing economies came from retail sales figures showing that the high street enjoyed a better-than-expected March.

Sales rose 0.3 per cent last month, ahead of the forecast 0.5 per cent. The annual figure was down slightly at 4.6 per cent from 4.7 per cent, mainly because of an unusually strong March outturn for 1999. The breakdown showed that household goods sales rose 10.9 per cent in the year to March, its strongest gain for two years.

The data pushed sterling to a fresh 14-year high. The pound's index against the currencies of its main trading partners rose as high as 110.7. It was close to a new high against the weak euro.