Public spending plans jolted

THE GOVERNMENT'S ability to keep to its public spending plans could be under threat from unexpectedly high social security payments and a rebound in contributions to the European Union, according to figures just published by the Treasury.

The Treasury has raised its estimate of social security spending during the current financial year by more than pounds 800m in the three months since the November Budget, according to the statistical supplement to the Budget Red Book. A Treasury spokesman said the most likely explanation for the revision was an unexpected increase in the proportion of people entitled to benefits who actually claim them.

Estimated 'cyclical' spending on social security - which varies directly with changes in unemployment - is expected to total pounds 14.5bn in 1993-4, compared to an estimate of pounds 14bn at the time of the Budget. The estimated total for non-cyclical social security spending has risen from pounds 67.3bn to pounds 67.6bn.

But spending plans for future years have not been changed, suggesting that these influences are not expected to endure. The increase in cyclical social security spending forecast for next year has been cut from 5.7 to 3.5 per cent, while the increase in non-cyclical spending has been cut from 2.2 per cent to 1.7 per cent.

Ian Shepherdson, economist at Midland Global Markets, said the Government would have difficulty keeping the rates of increase this low. 'It looks like the first signs of strain in next year's official public sector borrowing forecast', he said.

The expected impact of higher social security spending on overall public spending was limited by a pounds 672m cut in estimated payments to the European Union this year. Forecasts of future payments have not changed, but a Treasury spokesman said that as the reduction was a matter of timing it was more likely to be reversed than augmented in future years.

This suggests that higher EU contributions could add to pressures on the public spending total next year.