Public sector finances were boosted by tax returns last month, with the government reporting a PS5.4billion surplus in January.
Official figures revealed that self-assessed income tax receipts reached PS21.9 billion in January, which was the highest January figure since April 1999, when monthly records were first established, and PS5.5 billion more than January 2022.
The government receives income from self-employed workers who must submit their self-assessment return by January 31st. This causes the balance sheet to be in surplus in January.
The surplus was however smaller than the PS12.5 trillion last year because rising debt costs and substantial spending on Energy Support Schemes as well as large-scale expenditures on tax collection as well as one-off payments to settle customs duties with the EU in the past were offset by the lower tax receipts.
The total bill has fallen due to lower natural gas prices, which has resulted in a larger surplus than the PS400m forecast by the Office for Budget Responsibility (OBR) in November. The OBR’s fall forecast for total spending showed that there was a lower than expected increase in borrowing. This year, the deficit has been more than PS30billion.
The cost of servicing government debt reached PS6.7 billion in January, the highest figure since April 1997 when monthly records were started. The rise in interest payments is due to the inflation impact, as measured using the retail price index (RPI) on index-linked gilts. These gilts make up approximately a quarter the government’s portfolio. Last month, the RPI was 13.4%.
PS3.3 billion of total debt interest bills were accounted for by index-linked gilts.
These data have exposed the challenges facing Jeremy Hunt, chancellor, in the lead up to next month’s budget. As a percentage gross domestic product, total national debt (PS2.49 trillion) now stands at 98%, an increase of 98.9% from the early 1960s. This is a level that has been seen since the 1960s.
Ruth Gregory, the deputy chief UK economist at Capital Economics said that January’s public finances figures suggested the chancellor may have room for some giveaways in the budget. However, with the OBR poised reduce its medium-term growth forecasts, any hopes that the chancellor could be able give away a substantial amount of money while still sticking to his debt-reduction plans may be crushed.
KPMG UK senior economist Michal Stelmach said that the OBR’s forecast was underwhelming and could prompt the chancellor “to offer a pay rise to public sector workers in his budget next month, hoping for a halt to another wave of strikes.”
He said: “Looking ahead we believe that the OBR’s PS12.8 million forecast for 2023-24 is likely to be only half the cost of the energy price guarantee due to lower wholesale energy prices. This will be partially offset by the new energy bill discount scheme for business with an estimated cost PS5.5 billion. It provides little relief in the short-term against wider spending pressures.
Hunt stated that “We are spending billions of dollars now to help households and businesses deal with rising prices.” However, with debt at its highest point since the 1960s it is crucial we keep our commitment to reduce our debt over the medium term.
“Reducing debt will not be easy, but it is essential to reduce debt interest so that we can preserve our public services.”