UK borrows more than expected in blow to Hunt's pre-election tax cut hopes - The Telegraph

The Government borrowed more than expected in February despite higher tax receipts, in a blow to the Chancellor as he seeks headroom for more tax cuts.

Public sector borrowing excluding banks hit £8.4bn last month, according to the Office for National Statistics, which was more than analyst predictions of £6bn.

However, it was still £3.4bn less than in February last year as more than a million self-employed workers were late to file their tax returns, meaning many of their payments showed up a month after the January deadline.

The Treasury has borrowed £106.8bn so far this financial year, which was £4.6bn less than in the same 11-month period a year ago, and the lowest amount for four years in cash terms.

But the sustained level of high borrowing means the next government will face financial pressure to reverse any tax cuts Jeremy Hunt announces before the election, according to Ruth Gregory at Capital Economics.

She said: “February’s disappointing public finances figures suggest that the OBR’s new 2023/24 borrowing forecast published in March’s Budget already looks too optimistic. But this may not prevent the Government from squeezing in another pre-election tax-cutting fiscal event later this year.

“But a fiscal tightening will probably still be required beyond 2024. So anything the Chancellor gives away will probably be taken away once the election is over.”

Tax receipts climbed sharply as the Chancellor raked in £906.2bn over the financial year so far, a rise of £50bn on the previous year.

Income tax, which has been boosted by a stealth freeze of thresholds at a time of rising nominal pay, raised an extra £22.5bn. Corporation tax receipts climbed by £14.3bn following a steep rise in the rate last April from 19pc to 25pc.

VAT brought in an additional £9.5bn, with inflation pushing up prices and so increasing in more revenue through the tax charged at 20pc on sales.

National Insurance, which for employees is charged at a lower rate because of Jeremy Hunt’s 2p cut which came into force in January, raised an additional £1.4bn.

But spending increased far more quickly. So far this financial year the Government has spent more than £1 trillion, an increase of £69.1bn on the year.

This includes a £39.4bn rise in payments to the Bank of England’s quantitative easing scheme, which is losing money due to higher interest rates and low bond prices.

The central government’s benefits bill climbed by £33.4bn to £267.7bn, as inflation-linked payouts ballooned in the cost of living crisis.

But the end of the energy bills support scheme meant the Government shelled out less in subsidies – down £17.8bn to £27.6bn.

Lower inflation meant index-linked debt also incurred lower interest bills. So far this financial year the debt interest bill has come in at £75.2bn, down from more than £100bn over the same 11-month period a year ago.

Alison Ring at the Institute of Chartered Accountants in England and Wales said rising spending pressures mean it will be hard for Mr Hunt to control borrowing as he plans.

She said: “Chancellor Jeremy Hunt’s aim to cut the deficit by a quarter to £87bn in the coming financial year will be challenging to achieve given much higher than inflation rises to the state pension, benefits and the minimum wage, while pressure to find extra money for defence, local government and public services is only likely to grow as the general election approaches.”

Laura Trott, chief secretary to the Treasury, said heavy borrowing is a legacy of pandemic and war.

She said: “It was right that this Government provided billions of pounds to support individuals and businesses during Covid, and pay half of people’s energy bills after Putin’s invasion of Ukraine. But we can’t leave future generations to pick up the tab.

“Because of the difficult decisions we have taken, the economy is turning a corner, inflation is falling and wages are up. We have also been able to cut National Insurance Contributions – a double tax on work – by £900 for the average worker, while also protecting public services including billions of additional funding for the NHS. The plan is working.”

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2024-03-21 08:43:00Z
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