Official figures released yesterday show the Treasury has a budget surplus of around Pound 40bn ? the highest ever ? giving chancellor Gordon Brown leverage for a range of tax cuts to keep voters happy.
A Financial Times report said the chancellor could cut between Pounds 3bn to Pounds 4bn in taxes, given the healthy state of the public finances, with government departments hastily spending budgets to meet the government’s 9% growth target.
Treasury’s coffers were boosted by a bumper increase in income tax receipts, and a smaller burden on the DSS from lower unemployment, and all despite a 13% rise (Pounds 17.5bn) in spending by central government in January.
Analysts said the chancellor was on course to exceed his full-year surplus target of £10 billion by more than 50%.
This news follows the Confederation of British Industry calls for no more than Pounds 2bn in tax cuts to avoid hampering further interest rate cuts.
However, Brown is likely to come under increasing pressure from Labour MPs please Labour’s core voters, with an election forecast for later this year, and the Tories promising a range of tax concessions.
The Pounds 40.7bn surplus was recorded from April 2000 to the end of January 2001, and would still be a record even if Pounds 22.5bn receipts from the mobile phone licence auction were excluded, although figures for net investment still lag some way behind Treasury forecasts.
Ciaran Barr, chief UK economist at Deutsche Bank told the FT there was ‘healthy scepticism’ among economists about Treasury predictions.
Barr added: ‘If we continue to see these rates of growth during the final two months of the fiscal year, the government’s spending targets will easily be met.’
Michael Portillo, the shadow chancellor, yesterday derided talk of a budget giveaway, claiming the surplus was the result the chancellor overtaxed the British people.
And in a speech tonight at the Institute of Directors, Portillo is expected to claim the UK is not keeping pace with the US and large European countries in the areas of growth, productivity and plans to cut tax.
Today, opposition leader William Hague, is expected to confirm Tory plans for a transferable income tax allowance for married couples with young children, predicted to save families as much as Pounds 1000 a year.
A conservative government would also end the tax on company healthcare schemes to encourage the access to private healthcare and reduce the burden on the NHS, the Tory party claims.