Tax windfall cuts deficit and helps Hammond fund NHS pledge

PHILIP HAMMOND will benefit from a £13 billion annual “windfall” for his Budget thanks to better-than-expected public finances.

The Office for Budget Responsibility (OBR), the economic watchdog, has markedly improved its deficit forecast. It previously said that public borrowing would be about £25 billion this year. However, the OBR underestimated the strength of personal tax receipts and corporation tax revenues. It will now revise down the country’s deficit for 2018-19 by about £13billion.

The OBR admitted that it tends to “over-predict deficits”, and has pledged to rectify this on Monday.

All borrowing forecasts will be revised down until 2022, according to the Financial Times. The change would mean the largest revision in borrowing forecasts since the early Eighties.

This should allow Mr Hammond to avoid any substantial tax rises in his forthcoming Budget, despite his recent hints that they would be needed to pay for the Government’s pledge to provide extra funding for the NHS.

The change will also give Mr Hammond more time to hold out for a potential “deal dividend” from the Brexit negotiations. The Treasury had been planning to cut pension tax relief and delay raising income tax thresholds in order to fulfil the £20 billion-a-year funding pledge for the health service.

While the updated forecasts would help finance the Government’s pledge to the NHS, they would not cover its commitment to end austerity.

Ending austerity would require £31 billion of additional spending by 2023, according to the think tank Resolution Foundation.

Matt Whittaker, deputy director at the Resolution Foundation, said: “Ending austerity carries a huge price tag of over £30billion by the end of the parliament. Doing it while also keeping debt falling as a share of the economy will therefore require tax rises.”