UK public sector borrowing was lower than expected in the first 10 months of the financial year, boosted by stronger tax receipts despite rising interest payments.
In the financial year to January, public sector borrowing was £ 138.5bn, the second-highest total since records began in 1993 but about half that posted in the same period the previous year, data from the Office for National Statistics showed on Tuesday.
It was also £ 17.7bn less than that forecast by the Office for Budget Responsibility, the UK fiscal watchdog, in October. This exceeds the £ 12bn national insurance tax rise planned for the spring to fund the NHS and social care.
This outperformance is more than explained by central government receipts, which have come in £ 29.1bn above forecast. The OBR said that it reflected “strong performance across taxes, led by income tax, corporation tax and value added tax”. In January, the £ 26.8bn of self-assessment tax receipts exceeded the OBR forecast by £ 7.8bn.
James Smith, research director at the Resolution Foundation think-tank, said: “Britain’s Omicron-defying labor market recovery is benefiting both workers and the chancellor.”
Michal Stelmach, senior economist at advisory group KPMG UK, said the underlying picture for borrowing in January was even better than the suggested data because about 20 per cent of taxpayers had not submitted their self-assessment return by the end of January, taking advantage of the one-month extension set by HM Revenue & Customs.
The figures suggest “that Omicron hardly hit incomes and tax revenues”, said Bethany Beckett, economist at Capital Economics. She added that borrowing for the current fiscal year “looks on track to come in a little below the OBR’s £ 183bn forecast”.
Borrowing in the first nine months of 2021-22 was revised down by £ 5.4bn thanks to lower spending on consumption and subsidies, alongside higher tax receipts.
However, higher inflation has raised debt interest costs, pushing year-to-date spending £ 8.8bn above the OBR forecast.
In January interest payments surged to £ 6.1bn, nearly four times higher than in the same month last year. Interest payments are rising rapidly due to surging retail price inflation to which some government bonds are linked.
Higher interest payments meant that the £ 2.9 public sector surplus in January, the first since the start of the pandemic, was smaller than the £ 3.5bn forecast by the OBR.
Samuel Tombs, economist at Pantheon Macroeconomics, calculated that interest payments in the fiscal year starting last April would probably be £ 25bn more than the OBR anticipated in the October Budget.
The cost of the test and trace program during the Omicron coronavirus surge also boosted spending in January. As a result, current public spending was higher in January than in the same month last year despite the end of most of the pandemic support schemes and the reopening of the economy. It was also higher than what was forecast by the OBR.
Paul Johnson, director of the Institute for Fiscal Studies, said chancellor Rishi Sunak “probably feels he’s got the public finances just about under control, but given his own targets to get the current budget balanced over the next few years, only just under control” .
Speaking on BBC Radio 4’s Today program, Johnson said: “This does not mean that he’s got lots of room for maneuver, given his own targets.” He noted that the big question was whether Sunak would announce any additional measures to ease the cost-of-living crisis in his spring statement in March.