Might some pre-election tax cuts be on the cards?
Speculation is mounting after the latest borrowing figures show Chancellor Jeremy Hunt has an unexpected £13bn at his disposal.
According to new ONS figures, total government borrowing in the financial year ending March 2023 came in at £139.2 billion – a drop from the £152bn forecast by the Office for Budget Responsibility at the time of the Budget only last month.
The unexpected wiggle room is largely driven by another month of buoyant tax receipts, with total income from receipts rising to £81 billion in March – £1.6 billion more than in March 2022. What’s more, total central government receipts came in at a giant £929 billion in the year to March 2023, an increase of £88 billion (10.5%) compared to the previous financial year.
There is a fairly major caveat to this sprinkle of good news. The figure may be lower than forecast but the government has still, in the words of Hunt, borrowed “eye-watering sums.” In the year to March, borrowing – the difference between spending and tax income – was at its fourth-highest mark since records began.
Public spending exploded during the pandemic, pushed up sharply by the furlough scheme and public health efforts to contain the virus. Since then, energy bill subsidies and soaring inflation have hampered efforts to bring it back in line. As a result, government debt has risen to its highest level since the aftermath of the Second World War. Total debt is now at 99.6 per cent of GDP. Prior to the pandemic, it stood at 80 per cent.
Nonetheless, the slightly less gloomy new figure still raises the possibility that we could see some fiscal loosening in the Chancellor’s autumn statement. This raises a further question: if Hunt does opt for a pre-election “giveaway”, what form will it take? Will it be tax cuts or might he instead opt for a further boost to spending?
With Brits facing the highest tax burden in 70 years, the Chancellor will face pressure from many Conservative MPs to settle for the former, in the hope of sweetening voters before the election. Then again, he could also come under heightened pressure from striking public sector workers, who will use this evidence of better-than-expected public finances as ammunition to keep pushing for their desired pay rise.
Of course, there is another alternative. He may decide to play it safe and appease neither side, instead holding on tight to the extra £13bn at his disposal. After Truss and Kwarteng’s disastrous fiscal experiment, Hunt will be jumpy about losing the confidence of the markets. And, faced with a hefty outstanding pile of debt, he’ll be fearful of further complicating his ambitious plan to get debt falling as a share of GDP in just five years’ time.
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