Tax cuts ruled out as PSBR falls below Budget forecast

THE CHANCELLOR, Kenneth Clarke, rebuffed calls for tax cuts or higher public spending yesterday after Treasury figures showed that the Government borrowed pounds 3.9bn less to cover the shortfall between its spending and revenue last year than he forecast in the Budget.

March's pounds 11.3bn public sector borrowing requirement took the total for the last financial year to pounds 45.9bn, compared with pounds 36.6bn in 1992-93. But the Treasury warned that special factors had led the PSBR to undershoot the Budget forecast, which did not imply that the same would happen next year.

The undershoot was partly explained by unexpected success in recovering poll tax arrears and collecting council tax payment, which meant that local authorities repaid pounds 1.9bn more debt in the year than had been forecast in the Budget. Central government borrowing was pounds 2.4bn lower than forecast, two-thirds of which represented a spending undershoot.

Adam Cole, economist at James Capel, forecast that the PSBR this year would undershoot the pounds 38bn Budget forecast by around pounds 2bn. He added that pounds 8bn more gilts were sold last year than were needed to fund the PSBR, so around pounds 29bn would need to be issued this year.

The Labour Party called for the Chancellor to abandon the second instalment of the imposition of VAT on domestic fuel, which will take the rate from 8 to 17.5 per cent, a call backed by the charity Church Action on Poverty.

But the Prime Minister's office rejected the idea. A senior Downing Street source said: 'The Government's policy has been set out clearly and I see no sign that it is going to be changed. I don't think the contingency arises.'

Downing Street officials said the undershoot on the PSBR was within the margin for error in the Budget forecast. ' pounds 46bn is still around 7 per cent of GDP and there has to be action to deal with it,' said the source.

The undershoot on the PSBR gave fresh impetus to Labour's local government campaign against the Government over the tax increases this month.