January surplus higher than expected at £7.8bn

21 Feb 12
The public sector recorded a surplus of £7.8bn last month, as a result of high tax payments and reduced borrowing from councils, figures from the Office for National Statistics reveal.

By Richard Johnstone | 21 February 2012

The public sector recorded a surplus of £7.8bn last month, as a result of high tax payments and reduced borrowing from councils, figures from the Office for National Statistics reveal.

This is around £1.5bn more than expected, the Office for Budget Responsibility said. It is also about £2.5bn higher than in the same month last year.

January is a major month for tax receipts, with companies paying the latest instalment of corporation tax by the end of the month. Payments of self-assessment income tax and capital gains tax for the previous financial year are also due.

The public sector has recorded a surplus in January in every year except one since monthly borrowing figures were first reported in 1993.

Central government’s surplus was the same as last year and the biggest change came from the £2.5bn reduction in borrowing by local authorities and public corporations.

However, the OBR said that the surplus ‘masked’ year-on-year growth in central government receipts of just 2.8% in January. This is lower than the 4.8% growth rate forecast by the OBR in its economic and fiscal outlook report last November. Specifically, self-assessment receipts and capital gains tax received in January were only up 1.5% on a year earlier, compared with November’s full year forecast of 10% growth.

The figures mean that borrowing for the 2011/12 financial year stands at £93.5bn so far, down £15.7bn from a year ago. Government borrowing for the year is likely to be lower than the OBR’s £127.1bn forecast – it would need to be £7bn higher than last year in the final two months to reach that total.

But the OBR also warned that central government spending could increase sharply in the next two months as Whitehall departments are expected to back-load more of their spending this year.

The Institute for Fiscal Studies said that the figures could provide more room for Chancellor George Osborne to decide on a fiscal stimulus in next month’s Budget.

An extrapolation of today’s figures suggests that public sector borrowing would come in at £116bn in 2011/12, which is also lower than the £124.2bn forecast in the Institute for Fiscal Studies’ Green Budget earlier this month.

Research economist Rowena Crawford said it was important to bear in mind that borrowing over the next two months might not follow the pattern seen over the previous ten.

But she added: ‘The chancellor would no doubt be pleased if borrowing this year were to come in lower than the OBR forecast. However, the composition of this lower borrowing suggests that it is unlikely to feed through into lower than currently forecast borrowing in future years.

‘Despite this caveat, the worsening economic outlook seen over the last year has increased pressure for a temporary fiscal stimulus package in next month's Budget. Lower-than-expected borrowing this year may give the chancellor scope for such a policy without damaging the credibility of the government's commitment to deficit reduction.’

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