Public finances: largest January surplus since 2008, but can it last?

19th February 2016


Britain has recorded the largest public finances January surplus since the financial crisis.


The Office of National Statistics (ONS) has released public finance figures that show the surplus in January, excluding banks, increased to £11.2 billion from £10.2 billion a year earlier.


January is typically a good month for tax revenues thanks to self-assessment tax returns being paid, said Maike Currie, investment director for personal investing at Fidelity International.


She said the self-assessment receipts ‘normally leave the Treasury in the black in the first month of the year’.


Last year figures were boosted by record self-assessment income tax receipts of £12.3 billion. This year’s number was even higher, ticking up to £12.4 billion,’ she said.


‘Today’s numbers are likely to have a significant impact on March’s Budget announcement, not least given chancellor George Osborne’s announcement in the Autumn Statement back in November that public finances over the next five years were looking £27 billion stronger, thanks to a combination of better tax receipts and lower interest payments on debt.’


However, Currie said the world has changed ‘dramatically’ since November ‘with concerns over China and global growth leading to tumbling stock markets and the governments’ postponement of the sale of Lloyd’.


Between the Autumn Statement and the end of January, equity prices fell 7.5% and, according to the Institute of Fiscal Studies (IFS), if they remained 7.5% below the Office of Budget Responsibility’s forecast this could reduce capital tax receipts in 2020/21 by around £2 billion.


‘As the IFS has pointed out, budget surpluses are rare events,’ said Currie.


‘Ignoring the immediate post-war period, when large surpluses were run, since 1952 there have only been eight out of 63 years in which the UK government has spent less than it has received in revenues, and it has never done so for more than three consecutive years.


“The chancellor may have painted himself into a dangerous corner with his deficit elimination promise, after all total debt matters far less than debt affordability  and currently record low interest rates means that we have never seen Britain’s debt as cheap.’



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