It suggested that the Chancellor is now well on track to achieve his growth target of 2.25% to 2.75% for 2006, as set out in the Budget in March – and may even be able to raise his forecasts for future years.

Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, announced that:

“Net immigration has touched record levels since Gordon moved into Number 11 nearly a decade ago with unforeseen and wholly positive implications for the UK economy."

“ITEM estimates that cumulatively since 1998 the increased tax take from immigrants, particularly those from Eastern Europe, could be as high as GBP18bn having a substantial and unexpected beneficial impact on the public sector finances.”

Even if immigration levels fall off in the next few years, ITEM suggested that the trend of older workers delaying their retirement and pensioners returning to part-time work is a permanent feature of the workplace, with implications for longer term economic planning by Government.

The report went on to observe that the UK economy has put in a "remarkable performance" in 2006, and both output growth and inflation are well within the Treasury’s targets, despite pressure from world energy and commodity prices – helped by accelerated growth in investment and exports.

However, Mr Spencer concluded:

“Although the Treasury will meet its revenue targets this year, this Chancellor and any likely successor are not out of the woods yet. Public spending and borrowing are likely to exceed forecasts for the foreseeable future and both will be hard to restrain in the run up to the next election. Unless Treasury spending is reined in, the current account deficit will remain in double figures for 2006/07 – at around GBP11bn."

“The economy is moving into uncharted waters in terms of that tax burden and it is difficult to predict how the excellent economic performance of recent years can be sustained against this deteriorating background.”