pounds 3bn borrowing surge dampens tax hopes

The Chancellor's scope for responsible tax cuts in the next Budget shrank even further yesterday with the news that government spending was pounds 3.2bn more than its income last month. Without pounds 1.1bn in privatisation revenue from the sale of Railtrack the gap in the Government's finances would have yawned even wider.

Adam Cole, an economist at brokers James Capel, said it left Kenneth Clarke "with only one policy lever to pull ahead of the election - lower base rates". In his Mansion House speech last week the Chancellor insisted that bringing the government budget into balance in the medium term was a key policy aim, and he would make sure it was achieved.

But the City was disappointed by yesterday's figures, which showed borrowing adjusted for privatisation receipts was higher in the first two months of this financial year than at the same stage last year.

Andrew Smith, shadow chief secretary to the Treasury, said the figures called into question the Chancellor's claim that public borrowing was on a downward trend.

Liberal Democrat Treasury spokesman Malcolm Bruce said: "It is clear the Government is heading for another blow-out on borrowing this year."

Mr Clarke is expected to adjust upwards his target for the public sector borrowing requirement when the Treasury publishes its new economic forecast next month.

City experts think the total for 1996/97 could be up to pounds 8bn higher than the current target of pounds 22.4bn.

That would mean very little shrinkage compared with last year's PSBR of pounds 32.2bn, itself pounds 3bn higher than the target set last November.

The reason for their scepticism is the toughness of the expenditure plans. The Govern- ment has successfully held spending to its ambitious targets for the past three years, and has an increase of only 1.2 per cent planned this financial year. If this is achieved it would mean a reduction in real terms.

Geoffrey Dicks, UK economist at NatWest Markets, believes a cut in real expenditure is "near-impossible in a pre-election year".

Departmental spending grew 3.3 per cent in the year to May, down from April's 7.3 per cent increase but well above the target. Much of the over- run in the first two months of the financial year has been on the social security budget rather than across all departments, and it is probably too early to conclude that the pattern has been set for the year as a whole.

"The slowdown in spending growth in May is encouraging, but it will need to be maintained in the months ahead," Jonathan Loynes, an economist at HSBC Markets, said.

After the concern about "missing" tax revenues towards the end of the last financial year, their growth has now started to overshoot the Treasury forecasts. Government receipts were 6.7 per cent higher in the year to May despite a 5 per cent fall in income tax revenues.

A combination of high income tax receipts last May and this year's tax cuts probably explains the drop.

VAT receipts, fingered as one of the main culprits for last year's shortfall, were up 16 per cent. However, revenue from corporation tax, the other problem area in 1995/96, was flat.

The headline PSBR in May was exaggerated by an unexpectedly small repayment of borrowing by local authorities. They were in surplus by only pounds 100m this May, pounds 500m less than a year ago. Local authority reorganisation might explain why they spent more early in the financial year. As local authority borrowing is more or less capped over the year as a whole, this disapointment will be reversed later on.

Comment, page 17

Suggested Topics
PROMOTED VIDEO
Sport
Mario Balotelli pictured in the win over QPR
footballInternet reacts to miss shocker for Liverpool striker
Voices
Sol Campbell near his home in Chelsea
voices
News
Kimi the fox cub
newsBurberry under fire from animal rights group - and their star, Kimi
Arts and Entertainment
Ella Henderson's first studio album has gone straight to the top of the charts
music
News
<p>Jonathan Ross</p>
<p>Jonathan Ross (or Wossy, as he’s affectionately known) has been on television and radio for an extraordinarily long time, working on a seat in the pantheon of British presenters. Hosting Friday Night with Jonathan Ross for nine years, Ross has been in everything from the video game Fable to Phineas and Ferb. So it’s probably not so surprising that Ross studied at Southampton College of Art (since rebranded Southampton Solent), a university known nowadays for its media production courses.</p>
<p>However, after leaving Solent, Ross studied History at the School of Slavonic and East European Studies, now part of the UCL, a move that was somewhat out of keeping with the rest of his career. Ross was made a fellow of the school in 2006 in recognition of his services to broadcasting.</p>
TV

Rumours that the star wants to move on to pastures new

Life and Style
fashion
News
Paul Nuttall, left, is seen as one of Ukip's key weapons in selling the party to the North of England
i100
Arts and Entertainment
Russell Brand labelled 'left-wing commie scum' by Fox News
TV
Arts and Entertainment
BBC's Antiques Roadshow uncovers a TIE fighter pilot helmet from the 1977 Star Wars film, valuing it at £50,000
TV

TV presenter Fiona Bruce seemed a bit startled by the find during the filming of Antiques Roadshow

News
people

Comedian says he 'never laughed as hard as I have writing with Rik'

News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Steven Caulker of QPR scores an own goal during the Barclays Premier League match between Queens Park Rangers and Liverpool
football
Arts and Entertainment
artKaren Wright tours the fair and wishes she had £11m to spare
News
i100
Life and Style
Kirsty Wark and Camila Batmanghelidjh been invited to take part in Women Fashion Power, a new exhibition that celebrates the way women's fashion has changed in relation to their growing power and equality over the past 150 years
fashionKirsty and Camila swap secrets about how to dress for success
Arts and Entertainment
Joy Division photographed around Waterloo Road, Stockport, near Strawberry Studios. The band are Bernard Sumner (guitar and keyboards), Stephen Morris (drums and percussion), Ian Curtis (vocals and occasional guitar), Peter Hook (bass guitar and backing vocals).
booksNew book on Ian Curtis sheds fresh light on the life of the late singer
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

IT Operations Manager - London - £55,000

£50000 - £55000 per annum + bonus + benefits: Ashdown Group: IT Relationship M...

Banking Solicitor NQ+

Highly Attractive Salary : Austen Lloyd: NOTTINGHAM - BRILLIANT FIRM - You wil...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past