The UK public sector spent less than it received in taxes and other income in January for the first time since the start of the pandemic.
The surplus in January was lower than expected, however, because of surging interest payments on government debt and increased NHS costs, reducing the fiscal leeway accumulated between April and January.
Public sector net borrowing was estimated to have been in surplus by £2.9bn last month, equivalent to £5.4bn less borrowing than in the same month a year ago, data from the Office for National Statistics showed on Tuesday.
This is the first surplus since January 2020, before the first restrictions were imposed, but it was lower than the £3.5bn forecast by the Office for Budget Responsibility, the UK fiscal watchdog, and by economists polled by Reuters.
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 Tuesday on BBC Radio 4’s Today programme Johnson said “this doesn’t mean that he’s got lots of room for manoeuvre, 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.
In the financial year to January, 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.
It was also about £20bn less than forecast by the OBR, a larger fiscal boost than the £12bn tax national insurance rise planned for spring to fund the NHS and social care.
Central government bodies spent £76.3bn in January, £500mn more than in January 2021, even though most pandemic support schemes, including furlough, had ended.
Current public spending was also higher than the £69.5bn forecast by the OBR in October, reflecting interest payments that 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.
Samuel Tombs, economist at Pantheon Macroeconomics, calculated that interest payments in the fiscal year ending starting in April will probably total £25bn more than the OBR anticipated in the October Budget.
Public spending was also boosted by the cost of the test and trace programme during the Omicron coronavirus wave.
Better news came from central government receipts, which were £91.6bn in January, up £8.6bn from the same month last year, supported by strong self-assessment income tax receipts and other taxes on work.
James Smith, research director at the Resolution Foundation, said “Britain’s Omicron-defying labour market recovery is benefiting both workers and the chancellor, with tax receipts this year so far over £25bn higher than forecast by the OBR last autumn”.
January’s figures were boosted by many taxes due that month and the figures suggest “that Omicron hardly hit incomes and tax revenues”, said Bethany Beckett, economist at Capital Economics.
Michal Stelmach, senior economist at KPMG UK, said the underlying picture for borrowing in January was better than the data suggested because about 20 per cent of taxpayers have not submitted their self-assessment tax return on time this year, taking advantage of the extended window set by HMRC.