Delayed payouts by lottery provide pounds 2bn boost for Treasury

Delays in making payments to good causes from National Lottery funds have boosted the Government's finances to the tune of more than pounds 2bn. The stockpile of money will make it easier for Kenneth Clarke, Chancellor of the Exchequer, to announce tax cuts in November's Budget.

Camelot, the lottery operator, has paid more than pounds 2.4bn into the National Lottery Distribution Fund. But only pounds 343m has been distributed so far because so many of the projects which have received awards have had difficulty raising the required matching funds.

The remainder, amounting to more than pounds 1bn a year since the National Lottery was launched in November 1994, has gone into the Government's coffers. The fact that it is considered as general government revenue means it has reduced the public sector borrowing requirement. The PSBR is regarded by the City as the key measure of the Government's budget deficit. Anything that helps Mr Clarke keep it down will give him extra scope to cut taxes, with pounds 2bn equivalent to 1p off the basic rate of income tax.

"The impact of the lottery on the PSBR is taken into account, along with all other factors, in setting fiscal policies," a Treasury source said.

However, few independent economists would expect the Chancellor to set a tougher borrowing target to offset the impact of the lottery funds.

David Mackie, an expert at City investment bank JP Morgan, said: "The Government will probably end up cutting taxes by more than people are expecting and will still be able to publish a favourable PSBR outlook."

He predicted that the economic recovery would also help improve the Government's borrowing position. "If they give away that cyclical improvement as lower taxes, the next government will have to claw it back," he said.

In evidence to the National Heritage Committee of the House of Commons earlier this year, the Treasury predicted the delay in paying out lottery grants would flatter the PSBR by a maximum of pounds 1.5bn this year. The boost to the government finances would then settle down at about pounds 1bn, it suggested.

The Treasury's experts had expected the rate at which payments were made to increase dramatically to pounds 1.4bn in the current financial year from only pounds 300m in 1995/96 but this now looks an ambitious target.

Barry Bracewell-Milne, author of a new book about the lottery, has defended the matching funds requirement. "It does make concrete the Treasury's commitment to make lottery funding additional rather than a substitute for general government spending," he said. But he criticised the lengthy delays in making payments.