State borrowing to rise as Treasury left with little 'wiggle room'

The Government is on course to exceed its borrowing targets by as much as £4bn this year, as public finance data came in much worse than had been expected - reports The Times.

Analysts said that the public sector net surplus was £993 million in October, compared with expectations of £3 billion, putting a dampener on the health of Alistair Darling's forecasts as the economy enters the second half of the fiscal year.

The Chancellor forecast in his Pre-Budget Report that public borrowing over the year as a whole would reach £38 billion. But the Institute for Fiscal Studies (IFS) said yesterday that the figure could reach £42 billion if present trends continued.

PriceWaterhouseCoopers predicted that the State would borrow £40 billion this year and next.

The IFS said that the overshoot in borrowing was because capital spending was growing twice as quickly as the Treasury forecast.

John Hawksworth, head of macroeconomics at PriceWaterhouseCoopers, said: "At this point in the economic cycle, the public finances should be improving in order to provide some 'wiggle room' in the event of a future cyclical downturn."

"The fact that they are getting worse will be of concern to the Treasury, since it suggests possible structural weakness and a potential need for further tax increases or greater spending restraint looking ahead."

In this context, the apparent enthusiasm of the government and many MPs to spend an extra £7bn on paying the European Union's extravagant and largely unverified bills looks particularly ill-advised.

Those MPs who vote approve these extra payments when the final vote in Parliament on the European Communities (Finance) Bill comes will consequently have to bear major responsibility for the tax increases or other public spending restraints impacting on their constituencies that analysts are now saying will have to come if the public finances continue to worsen.

Such irresponsible decisions to throw billions more pounds every year into such a black hole of waste, extravagance and fraud cannot possibly come without a price.