Relief for Brown as revenues surge

Gordon Brown was handed a timely boost yesterday when evidence of a surge in tax receipts from Britain's companies eased fears of higher taxes being needed to plug a hole in the country's public finances.

Ahead of next month's pre-budget report, the chancellor was provided with ammunition to defend his optimistic forecasts after the Office for National Statistics revealed a far bigger budget surplus in October than the City had expected.

The Treasury refused to be drawn on the implications of the £2.2bn surplus for next year's budget but expressed satisfaction that tax receipts were higher and spending was lower than Mr Brown had predicted back in March. City analysts said that even after October's bumper tax receipts, Mr Brown would still face problems if he was to meet his self-imposed rules on public spending but that in the short term he had been thrown a political lifeline ahead of his pre-budget report on December 5.

The Tories seized on figures showing that government departments have asked for an extra £1bn for this financial year, including more than £200m for administrative costs. The shadow chancellor, George Osborne, said the figures showed public finances were out of control.

But the Treasury denied the Tories' claim that the requests for extra funds meant departments had overspent, saying they were not allowed to overspend, and thus always asked for more money. They pointed to yesterday's ONS figures that showed government spending had been less than predicted by Mr Brown in this year's budget.

The ONS said the Treasury spent less money than it received in October, leaving public finances with a £2.2bn surplus. Corporation tax receipts were up 23% on last October, boosted in particular by oil company profits. This beat analysts' forecasts of £1.2bn. Overall, public-sector budgets were in surplus by £4.1bn compared with a £400m deficit in October last year. Public-sector borrowing was -£2.2bn compared with £1.7bn last year.

Vince Cable, the Liberal Democrat economics spokesman, said that although the figures were encouraging for the chancellor, they were partly due to the high oil price, which Mr Brown was also blaming for slower growth. "The chancellor must now turn his attention to the problem of spiralling personal debt if he is to address the faults in the UK economy," he said.

The chancellor has come under fire from several quarters including the CBI, which says the UK's £10bn black hole in public finances will require either raising taxes or cutting spending. Mr Brown has already indicated he will revise forecasts in his pre-budget report. He had predicted growth of 3% or more in this year's budget but is likely to cut this sharply.

Analysts said that although the data provided a short-term boost to Mr Brown,it was "disappointing" and it remained unclear whether he would meet his golden rule in the next economic cycle. Professor Peter Spence, chief economic adviser to Ernst & Young, said: "We are heading for another large deficit on current account - double the Treasury forecast of £6bn." Howard Archer, chief UK economist at Global Insight, said growth was likely to be just 1.6%-1.7% this year, only half the 3%-3.5% predicted by Mr Brown.

There was mixed news on house prices with the Council of Mortgage Lenders showing the housing market remained resilient despite a slight fall in lending. Figures from the British Bankers' Association (BBA) also pointed to a slower mortgage market, with increases in net mortgage lending slower than the six-month average. The BBA also reported a £243m rise in net credit card lending, stronger than September's figure and the average for the past six months.