UK posts record fiscal surplus in pre-budget boost for Hunt

Britain delivered the biggest budget surplus on record in January, a boost for Chancellor Jeremy Hunt two weeks before he is due to announce what could be the last fiscal statement before a general election. 

Tax revenue exceeded spending by £16.7 billion (S$28.3 billion), more than double the surplus a year earlier, the Office for National Statistics said on Wednesday (Feb 21). It left the budget deficit in the first 10 months of the fiscal year at £96.6 billion – £9.2 billion less than the Office for Budget Responsibility (OBR) forecast.

The undershoot may raise the prospect of tax cuts in the March 6 budget to rescue the Conservative Party’s political fortunes ahead of a general election expected later this year. The Tories are trailing the Labour opposition in opinion polls by around 20 percentage points.

However, self-imposed fiscal rules requiring the debt burden to be falling in five years mean those demanding major giveaways could be disappointed.

Hunt is thought to have been told by the OBR that he has no more headroom than estimated in November, at around £13 billion. A third forecast as part of the pre-budget process was delivered to the chancellor this week.

The Treasury has been talking down the prospect of a big giveaway such as another two percentage point cut to national insurance, a payroll levy, or a similar cut to income tax. 

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The Resolution Foundation think tank is more optimistic. It reckons the margin could be around £23 billion, thanks to falling interest rates.

January is the biggest tax month of the year, as payments relating to self-assessed income and capital gains liabilities incurred during the previous fiscal year pour in ahead of an end-month deadline. Cumulative borrowing is now lower than a year earlier for the first time in this fiscal year, which began in April. BLOOMBERG