Outlook: Gordon as Santa

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The Independent Online
GORDON BROWN has always preferred to be seen as Scrooge rather than Santa Claus. Despite the rosy state of the public finances, the Chancellor has made it clear he will not start doling out presents to the electorate in the form of tax cuts or spending splurges if it jeopardises macroeconomic stability.

In the past, his problem has been maintaining this outward appearance of meanness in the face of the mounting cash pile. Now it looks as if he has an excuse.

The performance of the public finances in November was disappointing. Spending exceeded revenues by pounds 2bn, around double the figure expected by the markets.

So far this year, the public sector net borrowing is running pounds 5bn better than at the same time a year ago - the crucial issue is whether November marks a turning point.

There are good reasons for the weaker-than-expected outcome. Extra winter fuel payments to pensioners raised net departmental spending by pounds 800m while local authorities and public corporations borrowed another pounds 900m rather than repaying pounds 1bn as the City had expected.

But looking forward, this may not be a one-off. It is unlikely the excellent performance to date can continue. The Government has already decided to sacrifice - for political reasons - the revenue from the fuel duty "escalator" which pushes up petrol prices by 6 per cent above inflation. Meanwhile recent rises in interest rates are likely to cool the economy and so restrain tax revenues, while capital expenditure is taking off.

The Chancellor is likely to cash in the benefits of his prudent management of the economy by announcing some tax cuts and extra money towards its most sensitive departments - health, education and transport.

But Mr Brown is well aware of the mistakes his predecessors made by producing giveaway Budgets during an economic boom. He is unlikely to risk a large fiscal easing while the economy still grows above trend as it would force the Bank of England to hike rates sharply.

The Chancellor has given himself enough room to play the role of Father Christmas at Budget time, but anyone expecting him to start handing out presents willy-nilly has probably begun celebrating Christmas too soon.