Tax rises push up inflation

TAX INCREASES announced in Gordon Brown's first two Budgets sent headline inflation to a six-year high last month, but also helped set the Government on course to run a budget surplus a year earlier than expected.

Official figures yesterday showed the price consumers are paying for the Iron Chancellor's prudence.

The headline retail price inflation figure jumped to 4 per cent in April from 3.5 per cent the previous month, returning to its highest since May 1992. The underlying measure, which excludes mortgage payments, climbed further away from its target to 3 per cent from 2.6 per cent.

Almost all of the increase in both cases was down to higher taxes - excise duties on petrol and a reduction in mortgage interest relief, along with council tax hikes. The remainder could be accounted for by items such as prescription charges and TV licences.

Inflation measured by the tax and price index - the broadest indicator of the cost of living, including all Budget tax changes - leapt from 2.6 per cent in March to 4.1 per cent last month.

A Treasury spokesman said: "A temporary rise in inflation was expected this month." He added: "Our forecast is for underlying inflation to fall back in July and to remain on track to meet the Government's inflation target over the forecast period."

Most City experts agreed that the rise in inflation will prove temporary, but there was concern that the higher headline rate will nevertheless feed through to wage claims.

James Barty at Deutsche Morgan Grenfell said: "The inflation rate will not stay this high, but it is unfortunate that this has happened when there is already upward pressure on wage rates."

The Bank of England's Monetary Policy Committee has made it clear that it will not alter interest rates to offset tax-related inflation changes. But shock figures last week showing a jump in earnings growth to just under 5 per cent revived uncertainty about whether borrowing costs have reached their peak.

Separate figures yesterday showed that buoyant tax revenues helped the Government repay pounds 3.4bn of the national debt last month, a much bigger repayment than expected. Tax revenues were nearly 11 per cent higher than the same month last year.

This surge reflected both the continuing strength of the economy and tax increases announced in the July and March Budgets. Income tax payments were up an astonishing 19 per cent year on year due to pay rises, and especially big bonuses. Higher petrol and tobacco duties boosted total customs and excise receipts.

However, the figures also revealed an equally striking picture on the government spending side of the budget equation. Expenditure by Whitehall departments was just 0.9 per cent higher than the previous April, implying a fall in spending in real terms. In fact, spending was actually lower in cash terms than it had been two years earlier.

The Chancellor has forecast a public sector borrowing requirement of pounds 2.3bn for the current financial year before a move into surplus in 1999/2000.

But even though only one month of the year has passed, most City analysts were predicting a surplus a year early. The impact of slower economic growth is unlikely to hit revenues until next year, and even if spending starts to rise in real terms the outlook for the government's finances looks rosy.

"The underlying picture is better than the official forecasts," said Adam Cole of HSBC Securities.

Suggested Topics
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little