A SURGE in Whitehall departments’ spending has confronted Gordon Brown with the highest February borrowing by the Government since Labour took power in 1997.

Yesterday’s much worse than anticipated monthly figures for the public finances left the Chancellor sailing close to the wind over fulfilling his deficit forecasts for the full financial year in tomorrow’s Budget.

Only three months after he was forced to revise up planned borrowing for 2005-06 by £5 billion, to £37 billion, the disappointing figures again highlighted stresses on the public finances. The City sounded warnings that it was now “touch and go” whether these downgraded forecasts would now be achieved.

The latest blow for Mr Brown came only a month after confirmation of bumper tax receipts for January eased pressure on the Treasury, and underlined the continued vulnerability of its forecasts.

At £2.3 billion last month, public sector net borrowing was £800 million higher than for February last year and double the amount that City economists had predicted. The bad news was tempered by an upward revision to January’s surplus by £1.2 billion, to a hefty £13.8 billion.

The February figure was the result of both higher than anticipated department spending and a shortfall in expected tax revenue. Cash spending last month jumped 8.3 per cent compared with a year earlier. In the financial year to date, spending is up 5.6 per cent compared with the previous year — ahead of the 4.9 per cent target pencilled into the Chancellor’s updated plans in December’s Pre-Budget Report.

Tax revenues last month, on an adjusted PSNB basis, were up only 3 per cent from a year before and down from a 14.5 per cent gain in January. However, for the financial year to date, revenues have climbed 7.4 per cent year-on-year, just below the Treasury’s 7.7 per cent, thanks to buoyant corporation tax payments.

Analysts were split over whether the lacklustre February figures left the Chancellor on course to achieve his sharply increased borrowing forecasts for the financial year, although the Treasury was sanguine.

Ross Walker, of RBS Financial Markets, said that Mr Brown needed a £3 billion improvement in March’s monthly deficit figure to meet his £37 billion borrowing projection. “The odds are that he will narrowly miss his already revised PSNB forecast,” he said. “Overall, the UK continues to run sizeable structural deficits and the risks remain that the Government’s revenue forecasts will require increases in tax rates.”

Yet John Hawksworth, of PricewaterhouseCoopers, said that since yesterday’s figures were preliminary and left Mr Brown close to his targets, they “ should not cause the Chancellor to lose any sleep in the run up to the Budget”.

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