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Monday, 20 November, 2000, 16:32 GMT
Record UK budget surplus
Public Sector borrowing - graphic
Gordon Brown's war chest for the next general glection keeps growing, opening up the prospect of further tax cuts in the March budget.

[The figure] gives scope for further tax cuts or even public spending increases in the March 2001 budget

Trevor Williams, Lloyds TSB

The government banked another large surplus in October. The public sector net cash surplus was 7.4bn, taking the total surplus for the year so far to 35.4bn.

That is the highest on record, even after allowing for the 22bn raised from the auction of third generation mobile phone licences, which the Treasury says it will use to reduce total government debt.

And it is a spectacular reversal of the situation at the beginning of the 1990s, when the government's spending plans left it with a huge borrowing requirement.

Forecast 'pessimistic'

On the government's preferred measure excluding investment and auction sales, public sector net repayments measured 5.9bn in October, taking the total for the year so far to 11bn.

Two weeks ago the chancellor increased his forecast of this year's surplus from 6bn to 10bn, when he presented the pre-Budget report, while still boosting spending on pensioners and cutting taxes on fuel by around 4.8bn.

But many economists think it is now clear that he was being too pessimistic in his forecast.

Eddie George and Gordon Brown
The Bank can't fault the Chancellor
"This figure confirms that the chancellor's pre-Budget statement of what the surplus is likely to be... is still an underestimate," said Trevor Williams of Lloyds TSB.

"That gives scope for further tax cuts or even public spending increases in the March 2001 budget."

But a Treasury official cautioned against reading too much into one month's data.

"October is always a relatively good month for the public finances," he said.

Prudent public finances

There is speculation that the chancellor might cut the basic rate of income tax or announce further big spending plans for pensioners or the health service ahead of the general election which is expected to be called in May 2001.

Government finances have been boosted by the buoyancy of tax revenues, which depend on the strength of the economy, and underspending by government departments after years of spending restraint.

As a result, the government's overall debt has dropped to 305bn, or 32% of gross domestic product (GDP), the lowest since monthly records began.

That has also cut the cost of debt interest paid by the government.

However, the government still expects to be running a deficit by 2003/4, when the 43bn in spending increases announced in July are fully in place.

The main constraint on how much the government can spend now is the Bank of England, which might increase interest rates if it thought that further spending plans were inflationary.

But with the economy predicted to slow in 2001, the bank in its most recent report has said it expects inflation to be on target and is not worried by the government's plans.

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See also:

08 Nov 00 | Business
The 'prudent' economic approach
16 Nov 00 | Business
Where now for inflation?
02 Nov 00 | Pre budget report
Brown's limited options
09 Nov 00 | Business
Does the pre-Budget report add up?
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