A surprise surge in payments of income and corporation tax left the Government’s finances in the black by a record £14.1 billion last month, offering much needed respite to an embattled Alistair Darling.

In a boost for the Chancellor, the stronger than predicted jump in January tax revenues put him back on course to achieve his full-year projection for government borrowing, which had been in serious jeopardy.

The much bigger than expected January surplus in yesterday’s public finance figures - the last before Mr Darling unveils his first Budget on March 12 - cut public sector net borrowing (PSNB) over the first ten months of the financial year to £26.5 billion.

That is still £6 billion higher than in the same period last year, but now leaves the Chancellor on track to meet the £38 billion full-year borrowing forecast - raised in October’s Pre-Budget report from the £35 billion predicted by Gordon Brown in his final Budget last March.

Economists said that the news should spare the beleaguered Mr Darling, smarting from the political fall-out over the Northern Rock debacle, and retreats over “non-dom” and capital gains tax, from the embarrassment of having to raise this year’s borrowing totals yet higher.

“Like the US cavalry in a 1950s Western, today’s public finance figures arrived in the nick of time to get the Chancellor out of a tight spot on his forecasts ahead of the Budget,” John Hawksworth, of Pricewaterhouse Coopers, said.

But analysts sounded warnings that despite yesterday’s relief, Mr Darling still confronts a bleak outlook for the public finances in the 2008-09 financial year that begins in April, and beyond.

Yesterday’s data showed that income tax receipts leapt by 15 per cent in January, compared with the same month last year, while payments of corporation tax soared by 22 per cent. In the first ten months of the 2007-08 financial year, income and capital gains tax revenues rose by 8.4 per cent year-on-year, outstripping the Treasury’s forecast for a 7 per cent full-year increase, while company tax payments rose by 3.9 per cent, not far off Treasury hopes for a 4.5 per cent full-year advance.

Economists cautioned, however, that a deepening economic downturn is set to take a growing toll on the Government’s books.

“Prospects for 2008-09 still look bleak as markedly lower consumer spending and overall growth seem certain to undermine VAT and corporation tax receipts,” Howard Archer, of Global Insight, argued. “In addition, a substantially softening housing market threatens to exact a toll on stamp duty receipts…”

Peter Spencer, economic adviser to the independent Ernst & Young ITEM Club agreed. “The slowdown in the economy will hit the revenue side of the equation hard, making it much more difficult for the Chancellor to attain his forecasts,” he said.

The strained state of the government’s finances is being exacerbated by the impact of Northern Rock, with the Treasury already being forced by the Office for National Statistics to take the £100 billion-plus debts of now-nationalised mortgage lender on to the Government’s books.

The impact of Rock has yet to be factored into the official figures, but when it is the effect is expected to be to push net national debt as a percentage of GDP up to a 22-year high of about 45 per cent - far above the ceiling of 40 per cent set by Gordon Brown for the economic cycle just ended.

The Chancellor has yet to re-confirm that ceiling for the new economic cycle, but the political damage to the Government’s reputation is already substantial as the Opposition exploits the Treasury’s embarrassment.

The influential Institute of Fiscal Studies said yesterday that the long-term impact of Northern Rock on the Government’s financial position remained unclear but was likely to prove largely temporary. In the meantime, the Treasury should publish financial figures both including and excluding the stricken lender, the IFS suggested.

“It is possible that the ultimate effect, once all of Northern Rock’s long-term financial assets have been sold, could be to reduce net debt,” the IFS added.

However, the Conservatives continued to seek to turn up the heat on the Chancellor, describing the state of the public finances as a “complete mess”. Philip Hammond, the Shadow Chief Secretary to the Treasury, claimed that the impact of Northern Rock would be to “blow the fiscal rules apart”.

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