Pay increases that outpace inflation are not as big a concern if productivity is rising too, though they would still have to be funded. Unfortunately, there is no sign public sector productivity is increasing. It predicts a rise of around 70,000 a year in public sector employment which, against a background of “favourable” earnings trends, is described as “achievable within cash spending plans”. One is that the Treasury does not seem to have budgeted for it.

The “Red Book” from last March’s Budget spells out pretty clearly that the forecasts were based on similar low rates of increase in public and private sector earnings. But it won’t be met as comfortably as anticipated.If the bigger-than-expected borrowing numbers have not been caused by economic slowdown alone, what’s the explanation? Even after the revisions, slower growth than forecast this year does account for some of the shortfall, but the main culprit seems to be public sector pay. Average pay growth has shot up during the past 12 months, and is running at 5 to 6 per cent, almost twice the current rate of increase in the private sector.A catch-up by public sector workers was inevitable once the Government decided on big increases in public spending. Deteriorating relative pay over many years had hit recruitment in key services and morale across the sector But there are two problems. There is still enough leeway for the Chancellor to meet his “Golden Rule” – which says the current budget should balance over the course of the whole cycle – thanks to the huge surpluses his prudence delivered during the late 1990s.

The pattern of revisions means the level of GDP is higher than we first thought. With the benefit of hindsight, therefore, the Treasury should have been more worried about the increase in net borrowing during 2002 and 2003, because less of it has been due simply to the cyclical downturn in the economy. So the average error in the Treasury’s one-year-ahead forecast is £10bn – and the Treasury does better than most outside forecasters.The recent revisions to the GDP figures have also complicated the Chancellor’s plans, as he prepares for next month’s Pre-Budget Report. The Budget earlier this year estimated that net borrowing would be £27bn, up from a forecast of £24bn this time last year. The rate at which spending has outpaced receipts since the summer suggest the figure is likely to be bigger, perhaps over £30bn. This will represent a huge swing from a surplus of 1.7 per cent of GDP in 2000-01 to a deficit which could be more than 3 per cent this fiscal year.
Forecasting government borrowing is hard at the best of times. The net borrowing total is the gap between two very large numbers, and the different components of the tax and spending totals can be very volatile from month to month and year to year.

It speaks volumes for the difficulty of keeping the public finances under control that even Gordon Brown, once mocked for his emphasis on prudence, is struggling with the gap between what the Government is spending and its tax receipts. “I wouldn’t put money [on meeting the target] today, that’s for sure. I think it is going to be a real challenge,” said Mr Armitt.The Lowdown, page 7. Much to Mr Bowker’s chagrin, he has suggested Network Rail delay the West Coast project to save £1bn. But Mr Armitt hinted the latest £1.5bn cost cut might placate Mr Winsor.Separately, Mr Armitt and the Network Rail board are set to miss out on their executive bonuses – collectively worth £315,000 – because of poor train punctuality.In the year to 31 March 2004, some 82 per cent of trains must arrive on time to trigger the payments But the punctuality figure is currently at 79.6 per cent. Is that vital or not?”The news comes as the rail regulator, Tom Winsor, prepares to rule on how much money Network Rail can spend.