Rise in UK deficit narrows Brown's options

Gordon Brown

Britain's Chancellor of the Exchequer Gordon Brown will be feeling the mounting pressure.

The margin of error for meeting his "golden rule" on the public finances shrank yesterday, as official figures for the latest fiscal year showed the British Government had missed forecasts it set a month ago.

A spending splurge by local councils more than offset a rebound in tax receipts to leave the deficit on current - day-to-day - spending at £16.6bn, rather than the £16.1bn forecast in March's Budget.

The overall deficit including investment spending came in at £34.5bn for the year to March, marginally ahead of the Budget forecast of £34.4bn but better than 2003/04's £35.7bn.

The Conservatives seized on the increase in the current Budget, the measure used for the golden rule that dictates the Government must not borrow to fund current spending across an economic cycle.

George Osborne, the shadow Chief Secretary, said: "This is further backing from the Government itself for what almost all the independent experts have been saying - that there's a shortfall in Labour spending plans that they would have to fill with higher taxes."

The National Institute of Economic and Social Research claimed the Treasury was in breach of its rule by £300m. But analysts in the City said the figures were a boost for Labour. Malcolm Barr, at JP Morgan, said: "The overshoot relative to the Budget forecasts could have been substantially more embarrassing."

Figures from the Office for National Statistics showed tax receipts came in ahead of the forecasts in the Budgets of 2004 and 2005.

Central government spending came in £1.3bn lower than the Budget 2005 forecasts.

Meanwhile, fears of a rise in interest rates immediately after polling day faded yesterday, after the minutes of this month's Monetary Policy Committee meeting showed the Bank was in little hurry to take action. The MPC voted seven to two to keep rates unchanged for the eighth month running.

- INDEPENDENT