Business View: Gambling Gordon stakes £121bn on his last, desperate throw of the dice

While praising Mr Brown's record, the IMF said his forecasts were little short of fantastic

You can tell a true gambler by his attitude to failure. A cautious person, if they take a risk and lose out, sees this as a sign they should never have taken that risk in the first place. The last thing they do is gamble again. But those with a devil- may-care attitude believe their luck has to change and continue taking risks against all odds.

That is what I fear the Chancellor is doing. A man whose reputation for prudence was enshrined through his conservative management of a Labour expenditure plan in the first term of this administration, he is now taking risk after risk. And the worrying thing is, they are not paying off.

In his pre-Budget statement a week and a half ago, Gordon Brown said he would borrow an extra £121bn over the next four years so that Labour could maintain its public expenditure plans. He said he was comfortable with this - the new father even joked that it wasn't public borrowing that was keeping him awake at nights. Mr Brown's so-called Golden Rule, which says the books must balance over the life of a government, was safe.

However, in the last few days the Chancellor's sums have come under attack. The Ernst & Young Item Club - a forecaster whose record has been far better than the Treasury's recently, despite using the same economic model - thinks the Treasury will not reap enough from taxes to hit the Chancellor's targets, and he will undershoot by quite a few billion. The International Monetary Fund hit Mr Brown even harder. While praising his record, it said his forecasts were little short of fantastic, and he would need to raise taxes or cut spending if he was going to get Britain's finances to balance.

The Chancellor is in this fix because two years ago he took a big gamble that tax receipts would recover to where they were before the dot-com bubble burst in 2000. In his first four years at the Treasury, he benefited from an exceptionally good tax take. This was partly because Britain was booming - the City and the IT sector in particular were paying big bonuses and making good profits while the strong stock market was delivering exceptional income from stamp duty and capital gains tax. Mr Brown benefited, too, from the decision by his predecessor, Kenneth Clarke, to invest heavily in tax collectors in his "spend-to-save" policy.

By 2001, these favourable economic conditions were disappearing and, as Mr Brown had reversed the "spend-to-save" policy, the tax collectors were not delivering. Our story on page 19, revealing that Customs & Excise is collecting £12bn a year in VAT less than it should, is an example of this.

Despite these problems, the Chancellor gambled that tax returns would go up. He was wrong. He also gambled last year that the economy would recover quickly from the recession created by the dot-com collapse and 9/11. Again he was too optimistic. Now, by borrowing more and more to keep public spending on track, he is taking the same gamble again.

Will it pay off? The forecasters think not. And there is quite a lot of evidence to back their view. Look at retail sales. This has been one of the worst Christmases in recent years on the high street. People are clearly worried about their personal prospects and, as one of the key factors in the economy is confidence, this does not augur well for a return to strong growth. And what about interest rates? The Bank of England increased them in November and signalled it would do so again. Yet the greater threat is from the United States, where a high budget deficit, a weak dollar and buoyant domestic spending point to a rise in rates, which must surely have a knock-on effect.

A stock market recovery could help deliver the sort of tax windfall Mr Brown needs. Yet after a good second half of 2003, most market watchers are predicting that 2004 will be a damp squib at best.

If the Chancellor's bets do not come off, the true situation will become apparent towards the end of 2004, uncomfortably close to the next election. He won't want to cut spending or raise taxes then. This gambler is forcing us into hock.

j.nisse@independent.co.uk