The UK government posted a monthly budget surplus of £5.4 billion ($6.5 billion) in January, despite its substantial spending commitments, due in part to record income tax payments. According to the Office for National Statistics (ONS), this was £7.1 billion less than in the same month in 2022, but £5 billion larger than had been predicted by the Office for Budget Responsibility (OBR).
The budget surplus was partially driven by £21.9 billion of self-assessed income tax receipts for the month, which was the highest total for January since monthly records began in 1999 and was £5.5 billion or one-third higher than in January 2022. However, the high tax receipts were partly offset by substantial spending on the government’s energy support schemes, such as the price cap scheme that caps the annual energy costs of average households at £2,500 and the energy bills support scheme which paid £400 to households over six months to help cut their bills.
In addition, the UK government paid roughly £6.7 billion in interest on government debt in January 2023, the highest January figure since monthly records began in April 1997, due to the Bank of England’s interest rate increases. There was also a one-off £2.3 billion charge to the UK brought by the European Union related to undervalued customs duties on Chinese footwear and textiles while the UK was a member state.
Central government spending in January 2023 jumped by more than £20 billion to £103.6 billion compared with the same month last year. In the financial year-to-January 2023, the UK’s public sector borrowed £116.9 billion, which was £7 billion more than in the same period last year but £30.6 billion less than forecast by the OBR.
The latest data on the UK’s public sector finances triggered calls for the government to improve its pay offers to public sector workers, many of whom have joined industrial action in disputes over pay and conditions. However, Chancellor Jeremy Hunt said he remains committed to reducing debt despite the improved monthly performance. Prime Minister Rishi Sunak’s official spokesman also played down the prospect of tax cuts in the upcoming budget, saying that “borrowing remains at record highs and there is significant uncertainty and volatility which poses clear risks to the fiscal position.”
Economists are divided on whether the surprise surplus will mean the government can afford to be more generous than expected in the budget, which is to be unveiled next month. Michal Stelmach, senior economist at KPMG UK, suggested that the milder weather and lower demand for gas have helped keep the cost down, while Martin Beck, chief economic advisor to the EY ITEM Club, said that better borrowing figures “may not translate into more fiscal headroom for the government.”
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