In March alone it was £10.4bn, some £3bn higher than City expectations. Although the overshoot was small compared to the usual error in predicting the PSBR, until last month many observers were confident it would turn out lower than the Treasury had forecast.Government spending was lower than the Treasury had planned, but revenues fell even further short. Part of the explanation was the strength of exports, which cut into Customs and Excise receipts due to VAT refunds.However, income and corporation tax revenues were below forecast too, by £0.9bn. Slower economic growth accounts for this shortfall.The figures came as a new survey of more than 8,000 companies by the British Chambers of Commerce showed a significant slowdown in both domestic and export orders. Export orders are still strong but have fallen from recent record levels. The economy does not need a shot in the arm.” If the Chancellor wanted to use lower taxes to boost consumer spending, higher interest rates would be needed to dampen the resulting inflationary pressure.Reductions in tax would also threaten to derail the Government’s progress in bringing the public sector borrowing requirement below the level of 3 per cent of gross domestic product demanded by both common sense and the Maastricht treaty. It would re-heat the economy when most economists reckon slower growth is needed to prevent inflation rising.Keith Skeoch, chief economist at James Capel, said: “There is no scope for tax cuts at all.

Almost all thought cuts worth £5bn – equivalent to just over 2p off the basic rate of income tax – would trigger a base rate increase.
Chris Furness, senior analyst at IDEA, said: “The Government’s natural constituency in the City does not think the electorate can be bought.”Electoral considerations aside, economists do not believe a big reduction in the tax burden would be wise. A survey by the economic analysts IDEA found a third of City traders do not believe tax cuts of any size would win the election for the Conservatives. Prospects of a tax cut bonanza in the next Budget faded yesterday as figures showed that the Government had to borrow over £3bn more than expected in March. If the Chancellor does announce tax cuts in November, there will have to be additional increases in interest rates to compensate, City analysts say. It believes these concern cargo rather than passenger traffic.Mr Kinnock has tried to emphasise that the Commission is not pursuing the issue purely to gain influence in a very sensitive sector.”Of course, we are sensitive to the fact that member states want to pursue their own track,” the Commission official said, but she argued that fragmentation of efforts to reach agreement on transatlantic travel could undermine EU moves to liberalise European aviation.. It is preparing a letter, to be sent to Britain in the next few days, requesting information on the talks with the US.

The pacts are intended to make it easier for airlines to fly to and from the countries affected.The Commission fears that while this will lead to greater access to European destinations for US airlines, the European carriers will not benefit. Before then, it wants details of the Anglo-US talks from Brian Mawhinney, the transport minister.Mr Kinnock, former leader of the Labour Party, has already threatened legal action against six EU countries – Austria, Belgium, Denmark, Finland, Luxembourg and Sweden – that have held “open skies” talks with the US. It is preparing a mandate to negotiate a Europe-wide agreement with the US, and hopes to finalise this in mid-May before getting approval from EU member states in June. “We fear that this will have a distorting impact,” she said.The Commission wants to handle such negotiations itself. Neil Kinnock, European commissioner for transport, wants to intervene in crucial civil aviation talks between Britain and the US. Negotiations between the two on the sensitive Bermuda II bilateral agreement collapsed recently.
The Commission is worried that if the discussions go ahead Britain will undermine efforts to liberalise European aviation, according to a Commission official yesterday.