Brown gets pounds 12bn boost for Budget

GORDON BROWN, the Chancellor, received an unexpected pre-Budget boost yesterday after official figures revealed that the Government achieved a record budget surplus in January.

Economists predicted that the Government could be on course for an annual budget surplus of as much as pounds 10bn, meaning that the Chancellor could afford to introduce a starting tax rate of 10p without cutting into mortgage interest relief or the married couples' allowance.

Jonathan Loynes at HSBC Securities said: "Mr Brown could conceivably spend several billion pounds on the March Budget and yet still forecast that he will meet his fiscal rules".

Other economists, however, were more gloomy, warning that monthly public finance figures tended to be volatile. Treasury officials also cautioned against reading too much into one month's data.

Although corporation tax receipts mean that January is always a good month for the public finances, the record monthly surplus of pounds 12.4bn was substantially higher than City expectations.

Analysts said they had underestimated both the impact of self-assessment on income tax receipts and the fall in departmental spending.

Inland revenue receipts totalled pounds 8.1bn in January, the Office for National Statistics said, pounds 7.5bn higher than December. Departmental spending fell pounds 4.1bn to pounds 21.1bn.

January's bumper figures mean the Government has achieved a budget surplus of pounds 13.7bn so far this fiscal year, pounds 10bn more than at the same point last year. Although the Government tends to borrow both in February and March, only a slight year-on-year improvement would leave it with a surplus for the financial year of as much as pounds 10bn, according to Mr Loynes. This is substantially higher than the pounds 4.3bn forecast by the Treasury in November's pre-Budget statement, and would leave Mr Brown with considerable room for manoeuvre when he unveils the Budget on 9 March.

Some analysts, however, warned that the public finances could deteriorate substantially over the coming months as economic growth slowed.

A number also noted that departmental spending tended to accelerate towards the end of the financial year.

Neil Parker at Royal Bank of Scotland said: "We would caution against over-exuberance. We believe that departments will increase spending in the last two months of the year to use up all available funds. This could add pounds 4bn per month to government spending".

Outlook, page 19