KPMG comments on today’s public sector finances data

“The Chancellor bags a record budget surplus in January as he eyes more fiscal easing” says Michal Stelmach, senior economist at KPMG UK.

“January saw a surplus of £16.7 billion, up from £7.5 billion last year and the largest level since records began. Revenue typically exceeds government expenditure in January thanks to the inflow of self-assessment tax returns filed ahead of their annual deadline. However, this time the year-on-year comparison was flattered by a £9.9 billion drop in grants and subsidies, which last year included the cost of energy support schemes.

“The latest set of data suggests that borrowing could end 2023-24 at £114 billion. We expect the OBR to upgrade its fiscal outlook on the back of a weaker expected path for interest rates, lower spending on inflation-linked debt, as well as a possible upward revision to their net migration assumptions, which are net positive for the public finances. This could increase the headroom to meet the fiscal mandate to £21 billion, up from £13 billion at the Autumn Statement.

“The policy choice lies between fiscal pragmatism and a stated desire to cut taxes. Accounting for the customary fuel duty freeze could leave the Chancellor with around £14 billion to play with. This would be enough to afford a 2p cut to the basic rate of Income Tax, also benefitting the pensioners who could not take advantage of the recent reduction in the National Insurance contributions. However, it would inevitably come at a cost of a greater constrain on future policy options. Navigating this delicate balance will be a tricky task in an election year.”

 

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