A drop in government borrowing may give the Treasury fiscal headroom to announce cut tax measures this spring, ahead of the looming general election.
The government has borrowed less than expected in Dec. 2023, official data shows.
Britain’s budget deficit in Dec. 2023 was £7.8 billion, which was £8.4 billion less than what was borrowed in Dec. 2022 and the lowest December borrowing since 2019. Experts had expected it to reach £11.4 billion.
The release by the Office of National Statistics (ONS) showed that borrowing in the first nine months of 2023/2024 was £119.1 billion. This is £11.1 billion above the same period last year but £4.9 billion below the forecast by the government’s budget watchdog.
The inflation rate climbed to 4 percent in December for the first time in ten months. Apart from the latest hike,
consumer prices have been falling since Oct. 2022 when they peaked at 11.1 percent.
In addition to lower-than-expected inflation, the ONS said that Britain’s year-to-date borrowing figure was helped by a 5 billion-pound upwards revision of corporation tax receipts.
The OBR expects the overall picture on central government accrued receipts to be clearer in January’s data release. These figures will include a large share of self-assessed income tax and capital gains tax for the year, the watchdog explained.
Reacting to the borrowing data, the Chief Secretary to the Treasury Laura Trott
said that the UK economy “is now beginning to turn a corner” with debt on track “to fall as a share of the economy.”
Britain’s public sector net borrowing as a
percentage of the GDP skyrocketed in 2021, in the aftermath of the COVID-19 pandemic, when it stood at 15 percent. In the financial year to March 2023 the figure has gown down to 5.1 percent.
The government responded to the pandemic with almost £400 billion in extra borrowing,
said Chancellor Jeremy Hunt. He added that the war in Ukraine led to a further £100 billion in borrowing “to shield families and businesses from skyrocketing energy bills.”
‘Crowd Pleasing Measures’
According to Mr. Hunt, “sitting back and accruing an ever higher debt interest bill” was not an option for the Conservative government. The Tories had to take “difficult decisions on tax,” he added.
Shadow chancellor Rachel Reeves has criticised the government’s tax decisions.
“If the route to better public services and higher living standards was through higher taxes, we’d have them by now, because the tax burden is at a 70-year high and is indeed forecast to rise in each year of this parliament,”
said Ms. Reeves.
While Labour has been arguing against raising taxes, Mr. Hunt noted the opposition “didn’t complain” about the “huge extra borrowing” the government had to take in the aftermath of the pandemic and the war in Ukraine.
The easing of inflation has allowed the Treasury to provide some tax cuts. The Autumn Statement
announced a 2p cut to National Insurance and a tax cut on business investment.
Cutting taxes “responsibly” and repairing public finances will be the Tories’ “stall come the election,” said Mr. Hunt.
The general election is set to take place this year, with both the Conservatives and the Labour party seeking to secure the votes of Britons, burdened by the cost-of-living crisis.
Mr. Hunt may use his March budget to sway votes by announcing further “crowd-pleasing measures,” according to Ruth Gregory, an economist with Capital Economics.
Mr. Gregory
said the chancellor may have £20 billion of fiscal headroom to freeze fuel duty and a 1p cut to income tax.
Falling interest payments also create scope for tax cuts, according to
Pantheon Macroeconomics economist Samuel Tombs.
The
interest rate was left unchanged at 5.25 percent for the third time in a row by the Bank of England in December. Prior to this Britons saw 14 consecutive hikes of the interest rate, until it reached a peak in the summer.
