- Government finances show record surplus in January (largest surplus since records began in 1992)
- Borrowing over the current financial year £9.2 billion lower than the OBR had forecast
- Boost came from tax receipts, lower debt interest costs and the end of energy support schemes
Danni Hewson, head of financial analysis at AJ Bell, comments on the latest UK public sector finances:
“The numbers seem clear, there are 9.2 billion more reasons the chancellor might have the fiscal headroom to deliver the voter-pleasing tax cuts he’s been under pressure to magic up at next month’s Budget.
“Those energy support schemes that insulated households from the worst of last year’s price hikes have washed through the system and as inflation falls the cost of servicing all the debt piled on during the pandemic has also fallen significantly.
“Our old friend fiscal drag helped boost the tax take, a number always elevated during January thanks to the self-assessment deadline and further aided by increased corporation tax and a healthy chunk of VAT.
“And there lies the rub. Cut taxes and cut into the cash that’s funding increases in government staffing costs and benefit payments, which many argue should be used to further fund overstretched public services like the NHS. Then there’s the argument that cutting taxes and putting a little more into all of our pockets might rekindle those inflation embers and make central bankers more wary about cutting interest rates.
“The IMF warned that any fiscal headroom should be used to fix the roof whilst the sun shines, to replenish stretched budgets so that in the event of another geopolitical crisis the UK has enough left in the tank to fund policies like furlough or the energy price guarantee scheme. When you look at the debt to GDP ratio that argument certainly looks persuasive; up 1.8% over the year to 96.5%.
“And with the UK economy officially in recession confidence has taken a knock. Sector after sector has been lobbying for assistance, for a boost to help businesses stay on their feet.
“The chancellor is once again stuck on a high wire. With the weight expectation from so many parties pulling at his ankles, keeping his balance won’t be an easy task.”
