Chancellor handed an extra £5bn for tax cuts as borrowing slows

JEREMY HUNT has been handed an extra £5bn towards Budget tax cuts after public borrowing fell to its lowest level since before the pandemic.

Tumbling debt interest payments and the end of blanket energy subsidies helped to reduce the deficit to £7.8bn last month, according to official figures. It was less than half the total for the same month a year earlier and the lowest December borrowing figure since 2019.

The Office for National Statistics also revised down its estimate for November’s borrowing figure, meaning the Treasury has borrowed £119.1bn so far this financial year. The total is £5bn less than predicted by the Office for Budget Responsibility (OBR) just two months ago and suggests the Chancellor will have around £20bn of headroom to cut taxes, according to Ruth Gregory, deputy chief economist at Capital Economics and a former OBR analyst.

Ms Gregory said the watchdog was likely to revise down its borrowing forecast ahead of the Mar 6 Budget.

Mr Hunt has already hinted at major tax cuts in the Budget, vowing this week to put the UK on a long-term “path to lower taxes”, with strong hints that he is preparing to slash income tax or national insurance again. Ms Gregory said £6bn is likely to be spent on freezing fuel duty, which has not risen since 2011. More “crowd-pleasing measures”, such as a 1p cut to income tax at a cost of £7bn a year, could be implemented “while still maintaining fiscally prudent appearances”, she added.

Borrowing is falling as the Government’s income from taxes soars. The taxman is on track to net record sums from insurance premium tax this year as crumbling NHS services drive patients to private healthcare. More than £2bn was paid in insurance premium tax in the third quarter of the tax year. Receipts could now surpass £8bn by the end of the financial year.

But Richard Hughes, the head of the OBR, warned the long-term outlook for public finances was poor and said the next Government will need to “fundamentally rethink what the state does”. He said: “There are a number of other long-term challenges. The other obvious one is net zero, where the Government has made commitments to get from here to net zero by 2050.”

Laura Trott, chief secretary to the Treasury, said: “Inflation has more than halved. Debt is on track to fall as a share of the economy. And we have been able to afford tax cuts for 27 million working people, and an £11bn tax cut to drive business investment.”