Hunt’s scope for lower tax hit by higher than expected borrowing
Jeremy Hunt’s scope for a substantial pre-election tax giveaway has been hit after the latest set of official figures showed the UK’s public finances in worse shape than thought at last month’s budget.
Figures from the Office for National Statistics showed the government borrowed £120.7bn in the 2023-24 financial year – £6.6bn more than the Office for Budget Responsibility (OBR) had expected.
Although the borrowing overshoot does not rule out fresh tax cuts before an autumn election, analysts say it would make life more difficult for the chancellor.
Borrowing in March was just under £12bn – almost £5bn lower than in the same month a year ago but higher than the financial markets had predicted. The OBR said tax receipts in March had been more than £5bn lower than it had anticipated.
For 2023-24, tax receipts rose by £66bn and spending rose by £58bn, resulting in an £8bn fall in borrowing year on year to just over £120bn.
Ruth Gregory, a UK economist at Capital Economics, said the government ran a deficit of 4.4% of GDP in 2023-24, well above the 2.7% deficit in 2019-20 and the 3.0% average in the five years before the Covid pandemic. Last year’s deficit was double the £60bn in 2019-20 but lower than the record £315bn in 2020-21, when lockdowns were in place.
“Overall, if the chancellor was hoping March’s figures would provide more scope for tax cuts at a fiscal event later this year, he will have been disappointed,” she said.
Rob Wood, the chief UK economist at Pantheon Macroeconomics, said: “We expect the chancellor to cut taxes again before a likely October or November general election despite borrowing overshooting his forecasts.”
In a September autumn statement, the chancellor would be able to rely on the OBR extending its forecasts to 2029-30, Wood added. “Hunt can plan for another year of unrealistically weak public spending to generate ‘headroom’ against his fiscal rules and thereby manufacture the funds to cut taxes,” he said.
“The next government will, therefore, face a tricky choice between raising taxes to fix creaking public services or holding the line on the chancellor’s recent tax cuts. A Treasury spokesperson said
“Debt increased in recent years because we rightly protected millions of jobs during Covid and paid half of people’s energy bills after Putin’s invasion of Ukraine sent bills skyrocketing.”