Budget surplus ‘should boost firms’

The Office for National Statistics said the Government recorded a net surplus of £7.8bn excluding interventions such as bank bailouts, up £2.5bn on the previous year and its biggest figure since January 2008.

The better-than-expected figures will boost hopes the Treasury will beat targets set by the Office for Budget Responsibility (OBR) to reduce its borrowing to £127bn this financial year.

The news came as business leaders said changes to the tax system would offer vital support to the private sector.

The CBI said a “modest” amount would help firms create jobs, invest more and meet their carbon commitments, as well as freeing up spending on infrastructure.

Director-general John Cridland said the money was affordable, especially as the Government had found cash for weekly bin collections and the freezing of council tax.

“The Chancellor must use this Budget to score the growth and investment policy goals he put forward in his autumn statement,” he said. “While the state of the public finances is tight, the Chancellor still has an opportunity in this Budget to make sure the UK tax system is as internationally competitive as it can be.”

The CBI called for new models of private finance on infrastructure projects, including investment by pension funds, a simpler way of taxing foreign profits, and extending the Government’s youth contract to youths aged 16 and 17.

The Chancellor was pressed to introduce a new capital allowance to attract investment in types of infrastructure which do not currently qualify, including nuclear power stations, airport terminals and waste treatment buildings.

Mr Cridland also proposed replacing the carbon reduction commitment with a new climate change levy which he said would reduce red tape while maintaining revenue for the treasury.

January’s surplus helped push the Government’s underlying net debt back below the £1 trillion mark, to £988.7bn. Net debt is still 63 per cent of GDP, and is up from £869.1bn a year ago.

A Treasury spokesman said: “Our credible deficit plan is working and bringing Government borrowing down – so far this year it is £16bn lower than in the same period last year.

“It is the deficit plan, and its successful implementation, that is keeping interest rates at record lows for families and businesses and helping to support the recovery.”

January’s figures are key because they are the last to be revealed before the Budget, which will be published on March 21 and will give a final chance to judge whether the Government is on track to reduce the annual deficit.

Economists fear that the Government will find it harder to meet its forecast from the OBR in coming months as the UK’s economy teeters on the brink of recession and it faces bigger benefits bills amid rising unemployment.

Credit rating agency Moody’s recently put the UK on negative outlook, which means it is more in danger of losing its cherished AAA rating, as growth slows due to public sector cuts.

Shadow Chief Secretary to the Treasury Rachel Reeves, the Leeds West MP, said: “The Chancellor might claim today’s borrowing figures show his plans are on track, but he is only on track for targets which have already been revised up by a staggering £158bn.

“This is extra borrowing to pay for the costs of economic failure – slower growth and higher unemployment – rather than to support the economy through difficult times.”