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The UK government racked up its biggest monthly surplus on record in January ahead of chancellor Jeremy Hunt’s March Budget, which Conservative MPs hope will deliver eye-catching pre-election tax cuts.
The public sector recorded a surplus of £16.7bn, according to the Office for National Statistics on Wednesday. The figure was shy of forecasts pointing to a surplus of more than £18bn, but still double the figure this time last year.
January tends to be a strong month for the public finances as receipts flow in from self-assessment tax returns. The figures were helped by lower than expected debt interest payments.
Hunt, who will deliver his Budget on March 6, is under pressure from Tory MPs to find space for giveaways as the governing Conservative party trails Labour in opinion polls ahead of a general election expected later this year.
In his Autumn Statement in November, the chancellor cut business and personal taxes by £20bn, and has indicated he would like to be in a position to do more at the Budget.
This will hinge in part on the scale of the “headroom” Hunt has against his self-imposed fiscal rule, which requires the ratio of public debt to gross domestic product to be falling year-on-year in five years’ time. The measures outlined in the Autumn Statement left the chancellor a projected £13bn of headroom, according to November estimates.
The strong January budget figures reflected inflows of income tax and capital gains taxes, but also a reduction in the interest payable on government debt. This was £4.4bn in the month — some £3.5bn less than in January 2023 and £2.7bn less than forecast by the Office for Budget Responsibility, the fiscal watchdog.
As a result, public sector net borrowing in the financial year to January was £96.6bn, the ONS said, about £9.2bn less than was forecast by the OBR.
Ruth Gregory, an economist at Capital Economics, said the ONS numbers would provide the chancellor with some much-needed good news in the lead-up to the Budget, but she added they would not pave the way for a “big pre-election splash”.
She estimated the headroom against the chancellor’s fiscal rule will be about £15bn, only a little more than was forecast in November by the OBR.
Other economists have larger estimates, with the Resolution Foundation think-tank putting the probable headroom figure at about £23bn.
“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 per cent to 4 per cent,” said Laura Trott, chief secretary to the Treasury.
