Brown discovers 'secret cash pile'

Chancellor Gordon Brown is sitting on a hidden #5bn cash pile in the national accounts as he finalises preparation for his first Budget, claims a senior Treasury insider.

The source said extra tax revenues and unaccounted for yields from closing tax loopholes will provide a safety net for the new government.

Any extra funds are likely to give the Chancellor room to cut the Budget deficit and dampen the current consumer boom.

The source claims a sudden revival in tax revenues will see the PSBR, which is being run down steadily, come in at #3bn less than this year’s target.

Also, the full impact of closing tax loopholes in the last Budget has not been fully accounted for. Only a couple have been, in Treasury parlance, ‘scored’ in its Red Book. The remaining measures – including dealing with tax reliefs in areas such as leased assets and share buybacks – are not properly booked.

This, claims the source, will net another #2bn this year – and every year – handing Brown an extra #5bn this year.

Ex-Treasury official and KPMG economist Ed Stansfield said it was ‘easily feasible’ that Labour had inherited healthier public finances than it had expected. ‘If the figure is true, then the pressure on Gordon Brown to put up taxes will not be there.’

Roger Bootle, chief economist at HSBC James Capel, said it was possible that an extension of the undershooting on the PSBR last year into next year could add up to a saving of #3bn. He was more sceptical that closing tax loopholes since the last budget would already have achieved a #2bn saving.

But Chantrey Vellacott’s head of economics, Maurice Fitzpatrick, poured scorn on the figures. He suggested it was either the left trying to prove Brown could increase spending or the right pre-empting any attempt to raise taxes.

Fitzpatrick, who advises the Lib Dems, said: ‘The measures are fully accounted for in the Red Book. However, some of its predictions are way off, including the social security benefits from spend to save and the figures for economic growth.’

Brown’s main tax cut is reducing VAT on fuel to 5%. But he is certain to take at least #5bn from the utilities with the introduction of a windfall tax. It is also believed that he plans to scrap what is left of mortgage tax relief, and that he will slash advance corporation tax credits.