Jessica Fino 21 Feb 2017 05:29pm

January finance surplus hits 17-year high

The government recorded a £9.4bn public finances surplus in January, with borrowing declining to its lowest level since the financial crisis in 2008, new official data has found

According to the Office for National Statistics (ONS), public sector net borrowing fell to £49.3bn during the current financial year, while public sector net borrowing met a surplus of £9.4bn in January.

John Hawksworth, chief economist at PwC, said that even though the £9.4bn surplus was below market expectations, it indicated that the budget deficit for 2016/17 was set to come in below £60bn.

Hawksworth added, "Overall, the public finances now look in rather better shape than they did three months ago, and more in line with other data showing a relatively robust UK economy in the period since the Brexit vote.

"This should give the chancellor a bit more room in his Budget on 8 March to find extra money for priorities like the NHS and social care, and possibly also to alleviate the increase in business rates for the biggest losers from the coming revaluation in April."

Thomas Pope, research economist at the Institute of Fiscal Studies, said that even though it is usual for large surpluses to be run in January, this month's numbers contained “particularly good public finance news”.

However, Pope pointed out, “A simple extrapolation implies that government borrowing could be up to £12bn lower this financial year than the OBR forecast in November – at around £56bn. Accounting changes means this overstates the good news slightly – but even on a like-for-like basis borrowing is likely to end up between £5bn and £10bn lower than the OBR forecast.”

The ONS also found that self-assessed income tax and capital gains tax receipts increased by £2bn to £19.8bn in January, the highest January on record.

Richard Godmon, partner and head of tax at Menzies, said that, while the corporation tax rate is already planned to reduce to 17% in 2020, further changes should not be ruled out.

Godmon said, “Simply bringing forward this planned reduction to the headline rate of corporation tax would allow the government to send a clear message to the international business community that Britain is a great place to locate and invest. Ultimately, this will protect UK jobs.”

The British Chambers of Commerce (BCC) said that stronger than expected growth over the most recent quarter has boosted tax revenue in the UK, which indicates that Philip Hammond might indicate lower short-term borrowing forecasts during his Budget.

Ross Campbell, ICAEW public sector director said that average net national debt is expected to grow to just under £2trn in the next five years, the highest level of public indebtedness seen since the aftermath of a major world war.

“The government has promised an economy that works for all, which begins with bringing the public finances back into the black,” Campbell said.

“Next month’s Budget is the perfect opportunity for Philip Hammond to inject some optimism into a post-Brexit economy that is predicted to stagnate in the coming year. This should begin with funding infrastructure plans that are shovel-ready, give a strong return to the taxpayer, and drive economic growth.”

Suren Thiru, head of economics at the BCC, warned, “If UK growth becomes more sluggish, as we expect, the UK will find it increasingly challenging to generate the tax receipts needed to deliver real progress in cutting the deficit.”