UK posts record budget surplus in pre-budget boost for Hunt

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(Bloomberg) — Britain recorded its biggest ever budget surplus in January, a boost for Chancellor Jeremy Hunt two weeks before he announces what could be the last budget report before a general election.

Tax revenue exceeded spending by £16.7 billion ($21.1 billion), more than double the surplus a year earlier, the Office for National Statistics said on Wednesday. It left the budget deficit for the first 10 months of the financial year at £96.6 billion, £9.2 billion less than the Office for Budget Responsibility forecast.

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The understatement raises the prospect of tax cuts in the March 6 budget as Hunt comes under pressure from grassroots conservatives to save his political fortunes ahead of a general election expected later this year. The Conservatives, in power since 2010, trail opposition Labor by around 20 percentage points in opinion polls.

However, self-imposed fiscal rules requiring the debt burden to fall within five years could mean those calling for deep reductions could be disappointed.

The OBR reportedly told Hunt he did not have more headroom than estimated in November, around £13 billion. A third forecast as part of the pre-Budget process was delivered to the Chancellor this week. Hunt would consider cutting already tight public spending plans to create additional room for maneuver.

Treasury Chief Secretary Laura Trott downplayed the prospect of a windfall of tax cuts: « We have provided hundreds of billions to pay wages, support businesses and protect lives during Covid, and to paying half of the population’s energy bills after Putin’s invasion of Ukraine. « , she said in a statement. « But we cannot leave future generations to foot the bill, which is why we have taken difficult decisions to help reduce borrowing compared to what the OBR was waiting in March. »

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Michal Stelmach, senior economist at KPMG, said the government was on course to borrow around £10bn less this financial year than the £123.9bn forecast by the OBR when it declared November autumn. Hunt could see his margin increase enough to cut 2p in income tax and scrap a planned increase in fuel duty, Stelmach said.

The in-year fiscal position was boosted by revisions which reduced borrowing between April and December by £5.8 billion. This was entirely due to an upward revision in revenue, tax and national insurance receipts. For the first time this financial year, cumulative borrowing is now lower than a year earlier.

Strong revenues from VAT, personal and corporate taxes increased state revenues over the 10 months, while spending was supported by falling debt interest costs and the withdrawal of energy support schemes which added tens of billions of pounds to spending last winter.

Debt interest is lower due to a fall in the retail price inflation index against which a quarter of government debt is measured. Debt interest was the lowest for a January since 2021, at £4.4 billion, £2.7 billion less than the OBR forecast.

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The national debt has reached £2.65 trillion and remains at levels last seen in the 1960s, at 96.5% of GDP, the ONS said.

January is the busiest tax month of the year as payments relating to self-assessed debts incurred during the previous financial year flood in before the end-of-month deadline. Self-assessed income and capital gains tax receipts totaled £33bn last month, £1.8bn less than last year.

The Treasury transferred an additional £11.2 billion in cash to the Bank of England to cover losses from its quantitative easing program, bringing total payments to £49.4 billion since October 2022.

The BOE had transferred £123.9 billion to the Treasury between 2009 and 2022, but the recent reversal of flows now leaves the net gain from the program at £74.5 billion. The BoE expects the QE program to be in deficit within a few years.

—With help from Joe Mayes, Mark Evans and Joel Rinneby.

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