The UK government had an unexpected surplus in January despite “substantial expenditure” on energy costs and EU payments.
The United Kingdom’s treasuries were bolstered by the highest self-assessed income tax receipts since records began in 1999.
It meant the government spent less than it collected in taxes, leaving a surplus of £5.4 billion.
Before the Budget next month, economists saw a “mixed picture” of public budgets.
On March 15, Chancellor Jeremy Hunt will outline his tax and spending proposals.
Martin Beck, the chief economic counsel of the EY ITEM Club, a UK economic forecasting organization. Stated that the figures provided Mr. Hunt with “some positives to work with” in his Budget.
Mr. Beck stated that the government’s spending on bill assistance “will be a fraction” of what was officially projected last year due to the decline in wholesale energy costs.
However, because the government’s self-imposed fiscal rules regarding debt pertain to the next five years. He stated that short-term fluctuations in the UK’s finances “have little effect” on policies.
The OBR, the government’s official forecaster, predicted £30.6bn fewer public borrowing for the current fiscal year.
Michal Stelmach, the senior economist at KPMG UK, stated that this could “persuade the chancellor to propose a pay increase to public sector workers as part of next month’s Budget” to prevent further strikes.
However, according to Mr. Hunt, debt remains at its greatest level since the 1960s.
“We must adhere to our plan for debt reduction over the medium term,” he added.
To maintain public services, debt reduction requires tough decisions.
According to the Office for National Statistics, the government tends to spend more in January. Than in other months due to the quantity of self-assessed taxes it receives (ONS).
However, the majority of economists had predicted that borrowing would increase this time, in part because the government is spending so much money assisting households with their energy expenses.
It is limiting the average household energy bill to £2,500. But says this will rise to £3,000 in April due to the high cost of support.
The ONS noted that the government made “significant one-time payments” to the EU for historic customs duties in January.
The government had a surplus in January after record self-assessed income tax payments of £21.9bn offset these expenses.
It is not just the unexpected increase in tax receipts from the self-employed that has caught most economists off guard this morning, resulting in a surplus rather than the anticipated deficit.
Separate figures published this morning by HMRC indicate the amount of tax and national insurance collected so far in the current financial year is £368.5bn, a substantial increase of £44.9bn compared to the same period last year.
The government warns that “difficult choices” will be needed due to the highest debt level since the 1960s.
However, public finances are £31 billion less stressed than the OBR projected in November.
An argument that any of these measures are “unaffordable” in any objective economic sense is not supported by the data, despite demands to spend £2.6 billion preventing a further rise in energy bills or more money to alleviate the recruitment crisis in the NHS.
Despite the unexpected figures, January’s surplus was still £7.1 billion less than the same month in 2022. Additionally, government debt interest payments hit a new high for January since 1997.
According to the ONS, the increase in debt repayments, which amounted to £6.7bn in January, was “primarily” due to inflation.
This is because many UK government bonds, or “gilts,” which the government sells to international investors to raise the money it needs are “index-linked,” meaning that the government’s repayments rise in tandem with the Retail Prices Index (RPI) measure of inflation, which is currently in double digits.
The ONS reported that approximately £3.3 billion of the interest payable in January 2023 reflected the impact of inflation.
