UK public debt surplus is at its highest ever level for January, we run through the reasons why.
The UK’s public finances in January are in their healthiest shape since records began.
According to the latest figures released by Office for National Statistics, income from taxes outstripped public spending by £14.9bn, giving the government its largest January surplus since records began in 1993.
The huge surplus was driven by a £1.9 billion increase in self-assessment receipts as well as a £1.2 billion rise in capital gains tax receipts (CGT), compared to January 2018.
In the case of CGT, tax receipts are on course to hit record levels this year, with £6.8 billion in the Treasury’s coffers, notes NFU Mutual. Richard Needham, personal finance specialist at NFU Mutual, adds: “Many people paying CGT could have significantly reduced or eliminated any tax bill by sharing the burden with their husband, wife or civil partner.”
Bumper tax receipts not a sign of economic strength
While January typically sees the government in surplus, the larger than expected surplus was larger than expected, exceeding both January last year (£9.3 billion) and the consensus of estimates (£10 billion).
The bumper tax receipts, however, should not be taken as a sing of the UK economy strengthening. The receipts refer to income generated in the 2017/18 fiscal year. As Pantheon Macroconomics notes: “They tell us nothing about the economy’s current momentum.”
Indeed, the Bank of England recently cut its economic growth forecasts for this year from 1.6% to 1.2%.
The larger than expected surplus, however, will still come as good news for Chancellor Philip Hammond, particularly ahead of Brexit, with the UK set to leave the European Union towards the end of next month. The figures now mean that public sector borrowing will likely be below the full-year Budget forecast, made by the Office for Budget Responsibility (OBR). Pantheon Macroeconomics expects UK government borrowing to be £22.4 billion this year, around £2 billion below the OBR’s £25.5 billion forecast.
Lower borrowing will give the Chancellor greater “fiscal headroom” to draw upon to stimulate the economy should he need to, without abandoning his fiscal targets.
However, says Pantheon, we should not expect much of a spending boost in the upcoming spring budget yet. The economic consultancy argues: “with the economic outlook highly uncertain at present, next month’s Spring Statement probably will be a holding operation.”
Instead, Pantheon anticipates the chancellor to outline a boost in fiscal policy to boost the economy in the Budget, which will take place in the Autumn.