The latest figures for the UK public finances have given Rishi Sunak a large windfall on the eve of his Spring Statement, putting the chancellor in a strong position to help households with the sharply rising cost of living.
Strong tax receipts in February alongside a £ 13.2bn downward revision in public borrowing this financial year mean the deficit is set to be almost £ 30bn lower than the Office for Budget Responsibility forecast at the time of the October Budget.
Responding to the figures, the chancellor again hinted that he was preparing to help families deal with the cost of living crisis in his Spring Statement.
“Look at our record, we have supported people – and our fiscal rules mean we have helped households while also investing in the economy for the longer term,” he said in a statement.
But Sunak also tried to downplay the improvements in the public finances outlook. Global economic uncertainty raised the importance of taking “a responsible approach” to the public finances, he added.
Much of the improvement in borrowing will continue into 2022-23, strengthening pressure on Sunak to support families and delay the planned increase in national insurance contributions for employers and employees.
Strong tax revenues have come from the rapid growth of employment and rising inflation that is pushing up consumer spending and therefore value added tax revenues, which were 18.3 per cent higher in February than in the same month a year earlier.
However, schools, hospitals and the military have not yet been compensated for higher inflation-raising pressure on their budgets, in what Jonathan Portes, a professor at King’s College London, called an “austerity by stealth”.
In February, the public sector net borrowing was £ 13.1bn, an improvement on the £ 15.5bn figure posted in the same month of 2021.
The revised figures for the first 11 months of the 2021-22 financial year showed the government borrowing £ 138.4bn. With March borrowing expected to be around £ 15bn, the total deficit for the year is now likely to be approximately £ 153bn, about £ 30bn lower than the OBR forecast from last October.
James Smith, research director of the Resolution Foundation, said the figures gave Sunak more room to maneuver in the Spring Statement even though the improvements will have come too late to be included in the official forecasts. “The chancellor should take this opportunity to provide emergency income support to families through this cost of living crisis, starting with a £ 9bn boost to working-age and retirement benefits,” he said.
Debt interest at £ 8.2bn in February was £ 2.8bn higher than a year ago, reflecting higher interest rates and inflation payments on index-linked government debt, but this was dwarfed by the effect of higher inflation, employment and wages on tax receipts.
At this stage in the financial year, the OBR expected borrowing to be £ 164.3bn, about £ 25.9bn higher than the Office for National Statistics had estimated.