Brown's 'golden rule' under threat as tax revenues drop

Gordon Brown is in danger of breaking his "golden rule" governing the public finances, analysts said yesterday after official figures showed government spending running ahead of forecasts but tax revenues falling short.

Gordon Brown is in danger of breaking his "golden rule" governing the public finances, analysts said yesterday after official figures showed government spending running ahead of forecasts but tax revenues falling short.

The Treasury borrowed £5.2bn last month, taking total public sector net borrowing for the financial year to date to £18.8bn. It means that after five months of the current fiscal year, the Chancellor has already borrowed more than half of the £33bn for the full year he forecast in the Budget.

John Hawksworth, the head of macroeconomics at the accountants PricewaterhouseCoopers, said that simple maths pointed to a shortfall of £35bn for the full year. "Our analysis suggests that it will be a very close-run thing whether or not the Chancellor will meet his golden rule," he said.

The rule commits Mr Brown to balancing the budget over the economic cycle - meaning he raises as much in tax as he spends averaged over the cycle. The current cycle, which began in 1999, is due to end some time next year.

Figures from the Office of National Statistics showed total tax receipts have risen by 6.5 per cent so far this financial year, undershooting Treasury forecasts of 7.5 per cent.

Meanwhile, spending has grown by 6.6 per cent compared with a year ago, against a Budget forecast of only 5.5 per cent - despite a failure to hit its target for investment spending.

The Institute for Fiscal Studies said there had been no improvement in public finances so far this year, even though Budget forecasts imply a £4.5bn lower deficit than 2003/04. "Should the trends in spending and receipts seen in the five months so far continue for the rest of the year, there will be no room for slippage with just 12 months of the economic cycle to go," Christine Frayne, an analyst, said. Although most economists agree that breaking the golden rule would not be a disaster, it would be embarrassing close to a likely general election next spring.

Yesterday's figures showed some signs of a turnaround. The 6.5 per cent growth in tax receipts was better than July's 6.1 per cent thanks to an 8 per cent jump for August.