The UK government announced an unexpected budget surplus for January despite “significant spending” on energy support programmes, record debt interest and one-off payments to the EU.
The Office for National Statistics (ONS) today reported a seasonal budget surplus of £5.42 billion after the government spent less than it took in in taxes during the month of January.
The surplus was £7.1 billion less than that recorded in January 2022, but was £5 billion higher than previously forecast by the Office for Budget Responsibility.
Economists were surprised by the data after they had forecast borrowing of 7.8 billion pounds for the month, according to a Pantheon Macroeconomics consensus.
But the ONS instead reported a record £21.9bn of self-assessed income tax receipts for the month, which represented the highest total for January since records began in 1999.
These figures partially offset higher spending as a result of energy support for households and businesses due to soaring prices.
“This suggests the Chancellor will have some room for maneuver in the budget to fund short-term tax cuts and/or spending increases,” said Ruth Gregory, deputy chief UK economist at consultancy Capital Economics.
In January, payments to energy suppliers reached around £8 billion as a result of the government’s price cap schemes.
It also confirmed that the fourth round of payments under the Energy Bill Support scheme – which paid £400 to households over six months to help reduce their bills – cost an extra £1.9bn.
Central government spending rose by more than £20bn to £103.6bn in January, compared to the same month last year.
This included £6.7bn of interest on public debt – the highest January reading since records began.
January also saw a £2.3 billion levy on the UK by the EU involving undervalued customs duties on Chinese footwear and textiles while the UK was a member state.
The higher interest payment comes after successive rate hikes by the Bank of England. The percentage is now 4%.
Chancellor Jeremy Hunt said: “We are rightly spending billions now to support households and businesses with the effects of rising prices – but with debt at its highest level since the 1960s, it is vital that we stick to our plan to reduce of debt in the medium term. .
“Debt reduction will require some tough choices, but it is important to reduce the amount spent on debt interest so we can protect our public services.”
The UK’s total national debt was almost £2.5 trillion in January, reflecting an increase of £143.4 billion compared to the previous January.
Michal Stelmach, senior economist at KPMG UK, said: “Government spending on subsidies – which includes energy support – has so far been £6.8bn below the £44bn expected by the OBR this financial year, suggesting that milder weather and lower demand for natural gas have helped lower costs.
“Year-to-date borrowing has so far undercut OBR forecasts by £30.6bn, which could tempt the Chancellor to offer a pay rise to public sector workers as part of his Budget next month, hoping prevent another wave of strikes.
“Looking ahead, we estimate that the energy price guarantee is now likely to cost only around half of the OBR’s £12.8bn forecast in 2023-24, thanks to lower wholesale energy prices.”
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