Government finances show big surplus in January

People in the street

The government finances showed a large surplus last month, more than double the surplus last January.

The surplus – the difference between spending and tax income – rose to £16.7bn in January, the Office for National Statistics (ONS) said.

These are the last set of public finance figures to be released before the Chancellor’s Budget in March.

Jeremy Hunt has hinted he wants to cut taxes, but analysts said the surplus is unlikely to lead to big changes.

Despite being the highest surplus in nominal terms since monthly records began in 1993, it was lower than most economists had predicted.

But it is still likely to fuel calls for tax cuts in the forthcoming Budget, which many see as the government’s last chance to win round voters before a general election later this year.

The ONS said the surplus was the result of higher tax receipts and lower spending, with the government no longer subsiding household energy bills for example.

Every January, the government tends to take more in tax than it spends in other months due to the amount it receives in self-assessed taxes, according to the ONS.

In addition, the cost of financing the UK’s debt has gone down as inflation has fallen.

“Overall expenditure was down on this time last year, despite increased spending on public services and benefits,” said Jessica Barnaby, deputy director for public sector at the ONS.

Chief secretary to the Treasury, Laura Trott said: “While we will not speculate over whether further reductions in tax will be affordable in the Budget, the economy is beginning to turn a corner, with inflation down from over 11% to 4%.”

For the year as a whole, to April, the government is only on track to undershoot its forecast by between £10bn to £20bn. Chancellors usually allow some headroom in the finances, to allow for unforeseen changes in economic fortunes.

Susannah Streeter, head of money and markets, Hargreaves Lansdown said the figures represented a boost to the chancellor’s coffers, but were not big enough for a “Budget bonanza”.

“It offers a few inches of headroom for Hunt, but not enough for a Budget of dramatic tax cuts,” she said.

Capital Economics, an economics think tank, suggested using the added room for manoeuvre that the chancellor will have as a result of the surplus amounted to “putting the election before prudence”.

In the year from April 2023 public borrowing has totalled £96.6bn.

Overall the UK’s debt has risen compared to a year ago and remains at levels last seen in the early 1960s, the ONS said, at around 96.5% of the size of the economy, measured by GDP.

One of the government’s key pledges is that debt should be falling as a percentage of GDP in five years’ time.

Chart showing public sector net borrowing on monthly basis

The debate over whether January’s surplus in the government’s finances leaves room for tax cuts comes against a mixed economic backdrop.

The latest growth figures show that the UK went into a shallow recession in the second half of last year, although the governor of the Bank of England suggested this week that there were already “distinct signs of an upturn”.

The Resolution Foundation has warned that if the chancellor does cut tax in the forthcoming Budget, it would amount to a “tax sandwich” with any tax cut sitting between substantial tax rises in the years before and after it.

“Juicy tax cuts in this election year are sandwiched between far bigger tax rises already introduced last year. And highly unusually the government has already announced plans for a chunky package of tax rises that will come into effect after polling day,” said James Smith, research director at the Resolution Foundation. https://juswortele.com/

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