The company’s annual report showed that Keith Cochrane ousted from the chief executive’s post by Mr Souter got

The company’s annual report showed that Keith Cochrane, ousted from the chief executive’s post by Mr Souter, got a £740,000 pay-off.. The Uk’s public finances plunged into the red last month as spending surged and tax revenues weakened, official figures showed yesterday, raising fears that the Treasury will raise taxes to fill a growing shortfall. The Treasury’s preferred measure that smoothes out volatile movements, public sector net borrowing (PSNB), also jumped, but less dramatically.PSNB in June was £4.8bn, more than double last June’s £2.1bn. The total for the first three months of the year is now £13.8bn compared with a forecast of £27bn for the year to March 2004.Economists in the City said that, at the current rate, the Government was on track to rack up a deficit of as much as £37bn. This raised fears that Gordon Brown would have to raise taxes again to fill a widening “black hole” in the public finances. It would also put the UK in breach of the European stability and growth pact.”Today’s public finance figures were very poor,” said Philip Shaw, chief economist at Investec.

“Were these trends to persist, we would be approaching ‘black hole’ territory.”The plunge into the red was driven by a surge in government spending – breaking the pattern of the first six years of Labour government when it continually fell short of target.Public sector net investment has risen by 181 per cent so far this fiscal year, three times the 67 per cent pencilled in for the full year by the Treasury. Day-to-day current spending is up 8.2 per cent to date compared with a target of 6.5 per cent. In contrast, tax receipts have risen 5.6 per cent rather than the 7.0 per cent target. A slowdown in corporation and income tax revenues was only partly offset by bumper VAT payments.The Treasury yesterday declined to say whether it would again revise up its forecasts in November’s pre-Budget report. “We are still on course to meet our tough fiscal rules over the cycle,” a spokeswoman said. Independent analysts agreed the Government would balance the books over the cycle but said there was mounting concern over a public finance crisis further into the future.Christine Frayne, a senior research economist at the Institute for Fiscal Studies, said: “We fear the Chancellor’s medium-term forecasts may be too optimistic – even if the economy bounces back as sharply as he expects.”If so, further tax increases would then be needed to be confident of continuing to meet the Government’s fiscal rules with the comfort the Chancellor has looked for in the past.”This does not include any further additional growth in health and education spending in the next spending review or extra cash to meet targets on child poverty.

“While the ‘golden rule’ will undoubtedly be tested, there is likely to be little urgency for the Government to raise taxes ahead of the next election.”There was a silver lining for the Government from the figures as the strength of public spending in the quarter will boost estimates of economic growth. Figures published next week are expected to show quarterly growth of 0.3 per cent in the three months to June, following the decade-low of 0.1 per cent in the first quarter.. It never rains but it pours. Gordon Brown, the Chancellor, has kept very quiet over the Prime Minister’s spot of bother with Iraq’s apparently non-existent weapons of mass destruction, presumably quite deliberately so, but while he awaits his moment, another, possibly even more dangerous front is opening up on his own back lawn

It never rains but it pours. With just three months of the financial year gone, the budget deficit is already double what it was in the same period last year and a half what the Chancellor is predicting for the whole of this year.By some accounts, the Treasury has ordered all Government spending taps to be turned off until the numbers are brought back in line with forecast, but it may already too late. Barring an economic miracle, the full-year deficit will be higher by an order of magnitude than the £27bn predicted in the Budget.The only consolation is that although the numbers look frighteningly high, they are not nearly as bad as almost everywhere else.

In the United States, where the budget surpluses of just a few years back have melted away like snow in summer, the deficit now seems to be almost wholly out of control. This week the Administration’s Office of Management and Budget (OMB) raised its estimate of this year’s deficit from $304bn (£191bn) to $455bn, or 4.2 per cent of GDP. Not even in Germany and France is the situation as bad as that, and in Britain it is a great deal better.The OMB forecasts that the US deficit will decline markedly from next year onwards before returning close to balance by the end of the decade, but this depends crucially on a return to vigorous economic growth. The same goes for the Chancellor’s plans for “affordable” public spending. The numbers only stack up if, as the Chancellor predicts, the economy begins to achieve above trend growth from next year onwards.Yet while America’s tax-cutting agenda gives some reason to suppose a resumption of strong growth on the other side of the pond, all the indications are that here in Britain, taxes are much more likely to rise than to fall, leaving the Bank of England in the unhappy position of having to do all the work in making people feel better off by repeatedly cutting interest rates. Mervyn King, the new Governor, has already made plain that there are limits to that process.The UK economy has barely grown for two quarters now and if there was any growth in the latest three-month period (GDP figures for the three months to the end of June are to be published next week), it is likely all to have come from higher public spending. In the latest quarter, public sector net investment (capital spending in other words), rose an astonishing 180 per cent on the same period last year, against a budgeted growth of 67 per cent for the year as a whole.