Public finances in record surplus in January as debt interest costs plummet

Jeremy Hunt was handed a pre-Budget boost yesterday when official figures showed the Government enjoyed a record monthly surplus in January.

Latest data from the Office for National Statistics (ONS) revealed that the public sector collected £16.7 billion more in tax than it spent during the month.

In nominal terms this was the biggest surplus since monthly records began in 1993. The public finances usually enjoy a windfall in January because of the end of the month deadline for self assessment.

Nevertheless the scale of the surplus may allow the Chancellor to consider bigger tax cuts than he may have been previously considering in next month’s Budget.

The public finances were helped by a fall in debt interest payments to holders of gilts and a reduction in energy support payments

Borrowing in the financial year-to-January 2024 was £96.6 billion, £3.1 billion less than in the same ten-month period a year ago. This is the first time in the current financial year that year-to-date borrowing has been lower than in the equivalent period in the last financial year.

At the end of the month public sector debt stood at £2.65 trillion, equivalent to around 96.5% of the UK's GDP.

Chief Secretary to the Treasury, Laura Trott said:

"We provided hundreds of billions to pay wages, support business and protect lives during Covid, and to 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, which is why we have taken tough decisions to help reduce borrowing versus what the OBR expected in March. While we will not speculate over whether further reductions in tax will be affordable in the Budget, the economy is beginning to turn a corner, with inflation down from over 11% to 4%."

However, economists at forecasters Capital Economics said: “This doesn’t mean the Chancellor will have the cash to splash in the Budget. We think that probable downgrades to the OBR’s GDP and inflation projections will mean the Chancellor has just £15 billion (0.5% of GDP) to play with whilst still meeting his fiscal rules.

“We suspect he will unveil a smaller net giveaway than November’s £21 billion of about £10 billion (0.4% of GDP) and that he will have to resort to a further squeeze on public spending to meet his fiscal rules. But resolving the problem of how to deliver such tight spending plans will be a problem left for after the election