Gordon Brown received an early Christmas present yesterday from public finance figures showing that the surge in oil prices had triggered a flood of corporation tax receipts.
The Office for National Statistics said there was a public sector net cash repayment - a surplus - of £5bn last month, the highest for an October since 2001. That compared with a £1.5bn surplus a year ago and analysts' forecasts of a £1.3bn surplus. Corporation tax revenues jumped 23 per cent last month and are 18 per cent higher than last year for the seven months of the fiscal year.
The Government's preferred measure of the deficit, which dictates whether it has met the "golden rule", was also better than expected. The figures came a day after Mr Brown announced he would deliver his pre-Budget report on 5 December. Ross Walker, at Royal Bank of Scotland, said: "The cavalry, in the form of a surge in corporation tax, looks to have come to the Chancellor's rescue ahead of the PBR in a fortnight's time."
Public sector net borrowing (PSNB), the preferred measure, posted a surplus of £2.2bn, the highest for an October since 2002 and compared with a City forecast of a £1.2bn deficit.
That left the PSNB for the financial year to date at £21bn, nearly £5bn lower than at the same time a year earlier and compared with a full-year forecast of £31.9bn. However the deficit on current spending - which is key for meeting the golden rule that the Government must not borrow to fund day-to-day spending over the economic cycle - went further into the red. The shortfall rose £4.1bn to take the total to £10bn, ahead of the Budget forecast of £6bn with five months of the year to go.
Jonathan Loynes, at Capital Economics, said current trends indicated the current deficit would hit £12bn, double the Chancellor's target. "Were it not for the recent tinkering with the timing of the economic cycle, this would leave the [golden] rule under serious threat," he said.
Earlier this year the Treasury said it decided that the current cycle had begun in 1997, rather than 1999, which would allow the Treasury to include an extra £9bn of surpluses. October is traditionally a strong month for corporation tax receipts and analysts said there might be a further surge in January, the other key month for receipts.
The FTSE 100 index of leading shares raced to a four-year high yesterday on an upbeat assessment of corporate profits. A record volume of merger and acquisition activity and a bumper City bonus season should help fill the Treasury's coffers.
The figures benefited from continued control of Whitehall spending. Expenditure has grown 4.1 per cent so far this year, well below the Budget forecast of 5.8 per cent. Despite the surge in revenues, total receipts growth is failing to meet the Budget forecast of 9.2 per cent for the year to April, posting growth of 7.1 per cent in the year to date.
The Treasury has consistently predicted a pick-up in corporate revenues would keep borrowing on track despite the slowing in the economy over the past year. "The figures show a further strengthening in the public finances and we continue to meet our fiscal rules," a spokesman said.Reuse content