£28bn windfall to help cut UK debt

The move is aimed at calming fears of the international credit rating agencies, after two placed the UK on “negative watch” this month, endangering the coveted triple-A status – because of a fear that a lack of growth will undermine the recovery.

Chancellor George Osborne had been under pressure from some Tory back-benchers to use the £28bn as a means of funding tax breaks for businesses to stimulate growth.

But last night a senior Whitehall source told The Scotsman that “there will be no giveaways” and that the windfall “will be used to reduce borrowing and bringing down the national debt”.

He added: “This is the most responsible thing to do in the current climate.”

However, the use of Royal Mail pensions to cut the deficit is likely to provoke anger from the Communication Workers Union (CWU). It has warned of the government “asset-stripping” the fund, which has liabilities of £35bn in years to come.

The government is taking on the scheme because it was deemed Royal Mail could no longer afford the liabilities and its removal made it much easier to privatise the company.

The scheme and all its assets will be transferred to the government next month, which means the money can immediately be used to reduce borrowing.

The CWU, representing postal workers, said the use of the assets to pay off national debt must be matched by a guarantee that its members’ pensions would be paid.

“We’ve been campaigning for this for years,” a spokesman said. “When we first suggested it, we were laughed at. It’s important that pensions are protected.”

But the CWU remains opposed to the privatisation of Royal Mail.

“It’s not in the interests of the public, customers or postal workers,” the union’s spokesman said.

“Why nationalise the debt and privatise the profits?”

The Chancellor looks set to receive further help in bringing down the UK’s borrowing, which in the autumn statement was estimated to be at £120bn, with a windfall of £7bn from a government underspend and better than expected corporate tax returns.

The estimate comes from the accountancy firm Ernst & Young ITEM Club, which has called for Mr Osborne to use the money for tax giveaways.

Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said: “The Chancellor is well on track with reining in the public finances.”

He added: “If corporate tax receipts continue to increase at their current rate, the Chancellor might even be able to meet his fiscal mandate almost a year earlier than predicted by the Office of Budget Responsibility (OBR).”

But he warned: “A £7bn giveaway would have a limited macroeconomic impact and would risk sending the wrong signals to the ratings agencies and financial markets.”

If proven correct, the windfall, along with the Royal Mail pension funds assets, will ease problems caused by rising unemployment and a flatlining economy.

Labour has claimed that a lack of growth, which it blames on the government’s austerity measures, will create £158bn of extra borrowing in the course of this parliament.

Credit rating agencies Fitch and Moody’s have put the UK on “negative watch”, putting at risk its gold-plated triple-A status. Some commentators predict Britain will be the next country to have its credit rating downgraded after both the US and France were moved to double plus status, increasing the cost of borrowing for their governments and consumers.

The coalition has pointed to the UK’s retention of its triple-A status as vindication of its public-sector cuts and tax rises in areas such as VAT.