New threat of tax increases

THE prospect of tax rises is looming this Christmas after a double dose of economic gloom. Official figures showed the worst monthly borrowing since records began - pointing to a massive shortfall in Chancellor Gordon Brown's coffers.

It would take a 3p rise in taxes to make good the gap. In a second blow to families, a steep fall in mortgage lending pointed towards the prospect of a New Year slump in house prices.

Last month's borrowing figures are the clearest pointer to the danger of taxes being forced up after the next election to balance the public finances. The Treasury's coffers slid £9.4bn into deficit, the biggest November shortfall since comparable records began in 1993. So far this year public sector net borrowing has totalled £32.7bn - the highest for 10 years.

It left economists claiming Mr Brown cannot meet his £34bn forecast for the full year, ending in April. They also warned he would breach his self-imposed golden rule - to borrow only to invest over the economic cycle - requiring tax increases after the General Election to plug the public finances black hole.

Jonathan Loynes, chief UK economist at Capital Economics, said: 'We expect borrowing to overshoot the Chancellor's forecast by at least £2bn this year and a bigger overshoot is perfectly possible. The Treasury has suggested that the public finances will improve in the last few months of the year thanks to an oil-related boost to tax receipts. But this looks very unlikely to make up all of the shortfall and, in any case, spending is overshooting too.'

A Treasury spokesman said: 'We are meeting our fiscal rules and will continue to do so.'

Treasury officials believe revenues from North Sea oil and corporation tax can plug the gap. They say it is not unusual for alarming-looking numbers at this stage in the financial year and there is no cause for worry.

Mr Brown told MPs last week he was confident his golden rule would be met, although he hinted the time frame was flexible.

Investec Securities chief economist Philip Shaw described the latest set of borrowing figures as 'horrible'. 'This is going to make it much more difficult for the Chancellor to meet his golden rule, unless there is some kind of fudge,' he said.

On the housing front, meanwhile, two sets of new figures showed a dramatic drop in the amount of money given out to borrowers.

The British Bankers' Association said the big High Street banks loaned £4bn to homebuyers last month, down from £4.3bn in October and the lowest since January 2002. The Building Societies Association said mortgage lending by its members slumped from £2.4bn in October to £800m last month.

Approvals - loans agreed but not yet made - dropped by 23%, pointing to further falls in home loans in coming months. Today bankers warned of a grim 2005 for house sellers. Deutsche Bank expected house prices to decline by 10% to 15% next year.