The Chancellor has less room to offer tax cuts in the upcoming Spring Budget as figures released by the Office for National Statistics (ONS) shows that there is a smaller than expected surplus in January.
The ONS said that there was a public sector net borrowing surplus of £16.7 billion in January, this is more than double what was seen a year ago of £7.5 billion.
Economists have said that this leaves the Chancellor with little headroom to give tax cuts on 6 March.
Chief Secretary to the Treasury Laura Trott said, “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%.”
Ellie Henderson, an economist at Investec, said the Chancellor Jeremy Hunt “won’t be celebrating yet.”
She added, “Although the healthy January figure will no doubt be an accolade that the Conservative Party will publicly celebrate, in regard to the read-through to the fiscal headroom available for the upcoming March 6 Budget, today’s data was slightly disappointing.”
Martin Beck, chief economic adviser to the EY Item Club, said: “The Chancellor will have room to manoeuvre, but major tax cuts are looking less likely.
“Investors reining back their expectations on interest rate cuts this year, a weaker-than-expected economy, and some fiscal downsides from lower inflation have cut the likely scale of any extra headroom.”
