The financial markets shrugged off the disappointing figures. Shares in London set another record, passing the 4,200 barrier, and the pound jumped more than two pfennigs to its highest level since Black Wednesday.
The Treasury said the revision to the tax estimates applied only to 1997/98, and made no difference to the medium-term policy. Although it would not spell out the explanation, analysts said the timing suggested officials had calculated the yield on the increase in air passenger duty from April, when it comes into effect only in November.
The increase from pounds 5 to pounds 10 for European flights and from pounds 10 to pounds 20 for other flights is now expected to bring in only pounds 500m, rather than pounds 800m, while higher insurance premium tax is expected to yield pounds 1.1bn rather than pounds 1.2bn.
The pounds 400m shortfall represents a small fraction of total government revenues of around pounds 260bn a year. But the low-key announcement contrasted with the Chancellor's insistence on clawing back the pounds 1bn that higher VAT on domestic light and heat should have raised when he was defeated on this measure after the 1994 Budget.
The Public Sector Borrowing Requirement was pounds 2.1bn in December, compared with pounds 0.6bn in the same month a year earlier. The figure was higher than expected mainly because of a cluster of government interest payments on "strippable" gilts. The introduction of gilts whose coupon payments can be "stripped" is giving debt interest payments a strong seasonal pattern. The PSBR, excluding privatisation proceeds, stands at pounds 20.4bn so far this year, well down from pounds 23.6bn at the same stage last year. Government spending grew 3 per cent in the year to December.
Receipts grew faster than predicted. Although VAT receipts last month were 10 per cent down on a year earlier, corporation tax revenues were 30 per cent higher.
Analysts said the PSBR was on track to hit the Budget target of pounds 26.4bn. "We believe the Treasury was deliberately cautious in its PSBR forecast for the current financial year," said David Walton at Goldman Sachs. The crucial months for the full-year total will be January and March. The former is one of the most important months for corporation tax. And departmental spending could display a traditional year-end surge.
The FTSE 100 index rose just over 10 points to end at 4,207.7. A surge in the US dollar thanks to favourable trade figures helped the pound rise more than two pfennigs to close at DM2.6890, its highest since the ERM crisis.