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 leave the deficit set to be almost £30bn lower than the Office for Budget Responsibility forecast at the time of the October Budget.
Responding to the figures in a statement, the chancellor again hinted 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,” the chancellor said.
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, the chancellor 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 inflation that is raising spending and pushed value added tax revenues in February 18.3 per cent higher than in the same month a year earlier.
However schools, hospitals and the military have not been compensated for higher inflation raising pressures on their budgets, in what professor Jonathan Portes of King’s College London calls an “austerity by stealth” unless the chancellor raises their budgets in the spring statement.
In February, 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 around £153bn, some £30bn lower than the OBR forecast from last October.
The figures have been boosted by strong revenues with national insurance contributions, pay-as-you-earn income tax and value added tax revenues all rising at double-digit percentage increases in February compared with the same month a year ago.
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, some £25.9bn higher than the Office for National Statistics estimated.