January tax revenue jump helps Brown defend policy

Mr Gordon Brown, the British finance minister, hit back at critics of his public finance forecasts yesterday after a surge in tax revenues in January improved the outlook for government borrowing.

However, buried within budgetary data yesterday was a potential bombshell that could save Mr Brown from embarrassment over the public finances and his breaking of the self-imposed borrowing rules.

"As part of its regular process," the independent Office of National Statistics (ONS) said, it had decided that some of the government's current spending on roads should be classified as capital spending.

This is supremely convenient for the chancellor who, by consensus, is expected to have to raise taxes after an election if he is to meet his golden rule. This self-imposed fiscal limitation is to borrow only to invest over the economic cycle and means that current spending must be financed out of current revenues.

Mr Brown, meanwhile, hailed the tax figures as showing "that Britain, as I promised, is meeting our fiscal rules".

But economists yesterday said that tax increases would still be needed in the next parliament, and some said the ONS's impending reclassification of the rules was a sign of "jiggery-pokery" with the accounts.

In January, the public sector ran a surplus, excluding investment, of £9.2 billion (€13.3 billion), a result of bumper income tax revenues from self-assessment and a quarter of the year's corporate tax revenues.

The surplus was £2.5 billion better than that achieved last January and it reduced the current deficit so far this financial year to £19.2 billion.

To meet his forecast for 2004-05, Mr Brown still needs to count on a further £6.7 billion improvement in the last two months of the financial year.