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Hunt handed £9.2bn boost for Budget tax cuts

jeremy hunt
jeremy hunt

Jeremy Hunt’s plan to cut taxes has been given a boost after official figures revealed the Government borrowed £9.2bn less than expected after posting a record monthly surplus.

Lower debt interest payments and rising tax receipts have bolstered the Treasury’s coffers ahead of the March Budget, although economists are warning that the Chancellor will still have limited “cash to splash”.

Increased revenues from corporation tax, income tax and VAT resulted in a surplus of £16.7bn last month, according to the Office for National Statistics, which is the biggest January surplus since records began in 1993.

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The surplus meant borrowing in the first 10 months of the 2023-24 financial year stood at £96.6bn.

This was £9.2bn less than the £105.8bn forecast by the Office for Budget Responsibility (OBR) in November for the period.

January is traditionally a month where the Treasury sees a surge in revenues as higher earners and the self-employed pay their tax bills.

Higher inflation and the freezing of income tax thresholds have also turbocharged receipts as millions are dragged into higher tax bands.

The OBR believes 3.4m more people will be forced to pay the 40p or 45p rate of income tax by the end of the decade.

The TaxPayers’ Alliance urged the Chancellor to “give taxpayers the break they deserve and cut income tax at the upcoming Budget”.

However, receipts were £4.6bn lower than the OBR’s forecast of £116bn as income from higher earners, the self-employed and capital gains taxes eased.

Self-assessment tax receipts stood at £21.6bn last month, which is £2.4bn less than the £24bn forecast by the OBR.

Capital gains receipts hit £11.4bn, £1.4bn less than in January 2023 and £1.2bn less than forecast by the OBR.

The ONS cautioned that self-assessment receipts were likely to change because some taxpayers pay their bills close to the January 31 deadline.

Ruth Gregory at Capital Economics noted that borrowing was also revised down by £5.8bn for the year to December, partly due to an error by HMRC which discovered that it had failed to record billions of pounds in tax and national insurance receipts.

But she added: “This doesn’t mean the Chancellor will have the cash to splash in the Budget.

“We think that probable downgrades to the OBR’s GDP and inflation projections will mean the Chancellor has just £15bn to play with whilst still meeting his fiscal rules.

The OBR said it had already incorporated the weaker-than-expected tax receipts into forecasts presented to the Chancellor last week, suggesting the watchdog expects receipts will be slightly lower than expected in five years’ time.

Ms Gregory said: “We suspect he will unveil a smaller net giveaway than November’s £21bn of about £10bn and that he will have to resort to a further squeeze on public spending to meet his fiscal rules. But resolving the problem of how to deliver such tight spending plans will be a problem left for after the election.”

A falling debt interest bill has eased the pressure on the public finances. The cost of servicing government debt stood at £4.4bn, £2.7bn less than the £7.1bn forecast by the OBR.

Mr Hunt has recently played down the amount of money he has to cut taxes because borrowing costs have climbed since the end of December.

Commenting on the public borrowing figures, Laura Trott, the chief secretary to the Treasury, 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 11pc to 4pc.”