Increases in income tax, corporation tax and national insurance collections contributed to January’s total public sector receipts.
ADVERTISEMENTThe UK’s public sector net borrowing, excluding public sector banks, hit a new record surplus in January 2024, the highest since monthly records started being maintained in 1993, according to the Office for National Statistics.
Public sector net borrowing, not including public sector banks, saw a surplus of about £16.7 billion in January, which was more than twice January 2023’s surplus of £7.5 billion. However, it was still a just below analyst expectations of £18.7 billion.
Total public sector receipts inched up by 3.4%, coming in at £119.5 billion, primarily due to increases in income tax, national insurance and corporation tax collections.
On the other hand, total public sector spending reduced 4.8% to £102.8 billion, on the back of several energy support schemes being wound up and interest payable falling significantly. This went a long way in offsetting the higher public benefits and services spending.
Public sector net borrowing, including public sector banks saw a budget surplus of £17.62 billion in January 2024, which was almost twice January 2023’s surplus of £8.46 billion. However, this was also under market expectations of £18.4 billion.
What does this surplus mean for the upcoming UK budget?
Usually, a budget surplus is typically anticipated in January, due to a high number of self-assessment tax payments.
The public sector borrowing surplus in January, although a record one, was still less than previously anticipated. This may potentially give the Chancellor of the Exchequer, Jeremy Hunt, less opportunity to announce tax cuts, in the upcoming spring budget, due to be released on 6 March.
For households and businesses who may have been relying on these tax cuts to ease some of the current cost of living crisis, this may well be a crushing blow. This is especially due to expectations that soaring prices may only get worse in the coming few months, if the ongoing Red Sea attacks don’t abate.
Due to these attacks, several shipping companies such as Maersk, Hapag Lloyd and Mediterranean Shipping Company (MSC) have been forced to add significant travel time to their journeys by going around the African continent, instead of through the Red Sea and Suez Canal.
Shipping companies have highlighted that they may be forced to pass on costs to consumers. This has led to several UK and European supermarket chains such as Tesco, Marks and Spencer, Next and Primark warning that several product prices could rise, while others could be sporadically available.
Gora Suri, a PwC UK economist, as reported by Express & Star, said: “As inflationary pressures continue to ease over the coming months, this should reduce the burden of interest payments on the public purse.
“All eyes are on the Chancellor ahead of the upcoming spring Budget. With the Office for Budget Responsibility (OBR)’s final forecast assumptions now locked in, Hunt is likely to have limited scope for tax cuts or additional spending compared with his predecessors.
“The Chancellor may have more headroom than the OBR expected in November, due to falls in market expectations for interest rates and gilt yields, but lower tax revenues from a smaller cash economy may push headroom down.”
