Brown boosted by public finances cash surplus

The public finances boasted a record cash surplus last month, offering a boost for Gordon Brown before next month's pre-Budget report.

But the improvement did little to quell speculation that the Chancellor will be forced to use the event to raise his deficit forecasts for the current financial year.

The public sector posted a net cash repayment of £8.4bn, well above forecast and the best for an October since 1999. But it was flattered by the sale of British Nuclear Fuel's Westinghouse subsidiary.

The more respected net borrowing measure, which irons out monthly volatility, also swung into the black for the month, posting a surplus of £1.6bn.

However, the cumulative total rose to £22.9bn for the first seven months of the year, compared with £20.6bn at the same point last year. It means the Treasury has borrowed two thirds of its £36bn target with five months of the fiscal year left.

Meanwhile, the current account, the measure used to test the Chancellor's "golden rule", was still above the Budget forecast despite a £3bn improvement.

The current account deficit so far this year, which excludes investment spending, narrowed to £8.7bn from £11.5bn but is still above a Budget target of £7bn. Stephen Lewis, chief economist at Insinger de Beaufort, said: "There will have to be a substantial strengthening in the trend in the current balance in the remaining months of the financial year if the Treasury's forecast is to be met."

Peter Spencer, chief economic adviser to the ITEM Club, which uses the same model as the Treasury, said a deficit of £11bn was more likely. The Treasury's figures showed annual growth in central government spending running at 7.1 per cent compared with a Budget forecast of 4.6 per cent.

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, said: "To get back to its forecast, the Treasury will need to restrict spending growth in the next months to only 1.3 per cent."

The profile for tax revenues was more positive for the Treasury. They have grown at an annual rate of 6.5 per cent against a Budget forecast of 6.4 per cent.

Corporation and North Sea taxes have risen 18 per cent, while income tax was up almost 7 per cent. VAT rose by a healthy 5.1 per cent, probably reflecting the success of Customs & Excise in tackling so-called missing trader fraud.

The Treasury can also expect a fillip from a forecast record bonus bonanza in the City of London in the new year, which should boost the coffers in the final months of the fiscal year.