UK finances get surprise boost after record January income tax burden

The UK government posted a monthly budget surplus in January despite pledging to spend heavily, partly due to record income tax payments.

According to the latest data from the Office for National Statistics (ONS), net public sector borrowing was £5.4bn ($6.5bn) surplus in January. The borrowing surplus is £7.1bn lower than in the same month of 2022, but £5bn higher than previously forecast by the Office of Budget Responsibility (OBR).

The budget surplus was driven by self-assessed income tax receipts of £21.9bn in January, the highest since monthly recording began in 1999. This figure puts him at £5.5 billion, or a third higher than in January 2022. .

However, the high tax revenues were partially offset by high spending on government energy assistance programs.

In January, the government paid around £8bn to energy suppliers under a price cap scheme. annual energy cost £2,500 for the average household.

In addition, the fourth round of payments under the Utility Assistance Scheme (paying households £400 over six months to help reduce their bills) cost a further £1.9bn.

The UK government paid £6.7bn in interest on government bonds in January 2023, according to ONS. This was the highest amount in January since monthly records began in April 1997. To curb inflation, he raised the base rate to 4%.

In January, a temporary claim of £2.3 billion was made against the UK by the European Union in connection with undervalued tariffs on Chinese footwear and textiles while the UK was a member.

Compared to the same month last year, central government spending increased by more than £20bn to £103.6bn.

In the financial year to January 2023, the UK public sector borrowed £116.9bn. This is £7bn more than in the same period last year, but £30.6bn below OBR’s forecast.

Call for a raise

The latest data on public sector finances in the UK has sparked calls for the government to improve wage offers for public sector workers. Many of them participate in industrial action in disputes over wages and conditions.

Trade Union Congress (TUC) general secretary Paul Nowak said the new fiscal situation meant “the government is running out of excuses not to propose better wage agreements”.

“(Prime Minister) Jeremy Hunt must come out of hiding and help break the pay stalemate in the public sector,” he added.

Mark Serwodka, general secretary of the Union of Public and Commercial Services, said:

“Ministers have no excuse for not throwing in some money, or our strikes will continue to escalate.”

Focus on debt reduction

But Prime Minister Jeremy Hunt said he remained committed to reducing debt despite improved monthly performance.

Mr Hunt said:

“Reducing debt requires tough choices, but it is important to spend less money on debt interest so that public services can be protected,” he said.

A Downing Street spokesperson also downplayed the prospect of tax cuts in the upcoming budget.

The official spokesman for Prime Minister Rishi Sunak said: Due to the timing of the self-assessment receipts, January is expected to be profitable. His only January deficit since 2015 was in 2021 during the pandemic.

“Therefore, we should not place too much emphasis on the one-month data. Borrowing remains at record high levels, with considerable uncertainty and volatility, posing clear risks to the financial situation. .”

“Our overall focus remains on reducing debt,” the spokesperson added.

More “financial headroom”?

Economists are divided over whether the unexpected surplus means the government can afford to be more generous than expected in the budget due to be announced next month.

Michal Stelmach, senior economist at KPMG UK said: We were able to keep costs down because of gas.

“Year-to-date borrowing has so far been £30.6bn below OBR projections and the Prime Minister has decided to pay public sector workers as part of next month’s budget in hopes of preventing the next wave of strikes. may propose a wage increase to

“Looking ahead, we estimate that energy price guarantees are likely to cost only about half of the OBR’s £12.8bn forecast for 2023-24 due to lower wholesale energy prices,” Stelmach said. says.

But Martin Beck, chief economic adviser to the EY ITEM club, stressed that improved borrowing “may not lead to fiscal slack for the government.”

“The extent to which the OBR considers tax revenue improvements to be structural is uncertain, and there are question marks about how it will adjust estimates of the economy’s potential output growth in next month’s budget.”

PA Media contributed to this report.