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Jeremy Hunt handed pre-budget tax boost as UK posts record borrowing surplus

FILE PHOTO: Chancellor of the Exchequer Jeremy Hunt leaves 11 Downing Street for the House of Commons to deliver his autumn statement, in London, Britain, November 22, 2023. Stefan Rousseau/Pool via REUTERS/File Photo/File Photo
The UK recorded a record budget surplus in January, in a boost to Jeremy Hunt ahead of the budget. (via REUTERS / Reuters)

Jeremy Hunt has been handed a £9.2bn borrowing boost for his Budget next month as the UK posted its largest budget surplus for a January in at least 30 years.

The UK government has borrowed £9.2bn less than official forecasts had predicted by this point of the financial year, according tot the Office for National Statistics (ONS).

The £96.6bn borrowed so far is also £3.1bn lower than the same point in the first ten months of the previous fiscal year.

The ONS said there was a public sector net borrowing surplus of £16.7bn last month, more than double the surplus seen a year ago and the largest surplus since monthly records began in 1993.

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Read more: Falling interest rates give Jeremy Hunt £23bn headroom to cut taxes

Jessica Barnaby, ONS deputy director for public sector, said: “January’s surplus is the largest in nominal terms since monthly records began in 1993, although borrowing in the year to January is only slightly lower than the same period last year.

“Tax receipts are always higher in January than other months owing to self-assessed taxes, which often leads to a surplus.

“Also, with recent reductions in the Retail Prices Index rate, interest payable on government gilts and without last year’s energy support schemes, overall expenditure was down on this time last year, despite increased spending on public services and benefits.

“As a proportion of gross domestic product, public sector debt is up on the year, and remains at levels last seen in the 1960s.”

Hunt will present his annual budget on 6 March, and wants to cut taxes in order to boost the Conservative Party's popularity before the General Elections prime minister Rishi Sunak is expected to call later this year.

Ruth Gregory, deputy chief UK economist at Capital Economics, says the chancellor has some wiggle room, but not enough for a big pre-election giveaway at next month’s Budget.

She said: “January’s public finances figures delivered some much-needed good news for the chancellor in the lead-up to the Budget on 6th March.

Read more: HSBC full-year profits surge fuelled by high interest rates

“But we doubt this will pave the way for a big pre-election splash. We think the chancellor will be handed “headroom” of just £15bn (0.5% of GDP), limiting his ability to unveil big unfunded tax cuts if he wishes to adhere to the fiscal rules.”

Michal Stelmach, senior economist at KPMG UK, estimates Hunt could have £21bn of headroom for tax cuts in March’s budget.

Around a third of that flexibility could be used to freeze fuel duty again, Stelmach said:

“The latest set of data suggests that borrowing could end 2023-24 at £114bn. We expect the OBR to upgrade its fiscal outlook on the back of a weaker expected path for interest rates, lower spending on inflation-linked debt, as well as a possible upward revision to their net migration assumptions, which are net positive for the public finances. This could increase the headroom to meet the fiscal mandate to £21bn, up from £13bn at the Autumn Statement.

“The policy choice lies between fiscal pragmatism and a stated desire to cut taxes. Accounting for the customary fuel duty freeze could leave the chancellor with around £14bn to play with. This would be enough to afford a 2p cut to the basic rate of Income Tax, also benefitting the pensioners who could not take advantage of the recent reduction in the National Insurance contributions. However, it would inevitably come at a cost of a greater constrain on future policy options. Navigating this delicate balance will be a tricky task in an election year.”

Watch: Jeremy Hunt on UK going into recession

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