Buoyant tax revenues give Osborne room to manoeuvre

The UK’s public finances were in much better shape in January than expected. There was a current budget surplus of £8.5bn and public sector net borrowing was -£3.7bn.

The UK’s public finances were in much better shape in January than expected. There was a current budget surplus of £8.5 billion (compared to £4.1 billion in January 2010) and public sector net borrowing (PSNB) was -£3.7 billion (£1.3 billion a year ago).

January is an important month for tax revenues, because it is the deadline for a range of tax payments and a surplus is normally recorded. As a result of these figures, the cumulated deficit on the current budget over the first ten months of the 2010-11 financial year is £85 billion and net borrowing is £113 billion.

Two things follow from these figures.

First, the strength of revenues – for January and for the financial year to date – do not appear to be consistent with the weak fourth quarter GDP numbers (showing a 0.5 per cent decline).

There are lags from output growth to revenues, so care is needed, but a tentative conclusion would be that the public finances suggest the economy is doing a bit better than the GDP numbers suggest.

Second, if the Office for Budget Responsibility takes the higher level of revenues in 2010-11 as its starting point for the budget projections, then it will be revising down its estimates of deficits in future years. This will give the Chancellor a fair few billion pounds to play with on March 23rd.

He could choose to cut taxes, to spend a bit extra on a few pet projects, or to be ‘prudent’ and accept the lower path for the deficit; of course, if he chooses prudence (and the deficit remains on the new lower path), then he would be in a position to cut taxes or increase spending nearer the election.

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9 Responses to “Buoyant tax revenues give Osborne room to manoeuvre”

  1. sean gittins

    RT @leftfootfwd: Buoyant tax revenues give Osborne room to manoeuvre: http://bit.ly/ffgQqA writes @ippr's Tony Dolphin

  2. Hawkeye

    I’m not at all surprised that the revenues in January were higher than expected. As mentioned in the article, a number of tax payments are due in January including personal tax from the 2009/2010 tax year.

    I speak from personal knowledge that many people brought forward bonuses and dividends that would otherwise have been paid in the 10/11 tax year to be paid by March 2010. That was done to avoid the 50% tax rate which started in April 2010. The tax due on those payments (up to end-March 2010) would have been due in the January just gone.

    Thus to a certain degree, the larger revenues collected in Jan are due to people avoiding the 50% tax rate and so one should watch out for a) tax revenues collected during the 10/11 tax year to have been lower as a result (less PAYE/NI) and b) tax revenues collected in Jan 2012 to be less than expected as the bonuses/dividends that would have been paid in 10/11 were paid before that tax year started.

  3. william

    Note to Ed Balls.Banging on about cutting the deficit too fast, too soon in 2011 is not going to cut much ice with the electorate in 2014,when the tories will announce income tax cuts, and remind everybody of who was the architect of the financial mess.There needs to be a change of message and messager.

  4. Anon E Mouse

    William – Bang on. Can Labour supporters now please stop this “Double Dip Recession” nonsense and this business of cutting the deficit more slowly.

    It is quite obvious that to stop wasting money, (remember before the last election Labour stated they had found £11billion in waste) more quickly is desirable.

    To suggest otherwise is economically incompetent and makes Labour just look as if they’re in denial of the financial mess they’ve left this country in after government.


  5. Kelvin John Edge

    RT @leftfootfwd: Buoyant tax revenues give Osborne room to manoeuvre: http://bit.ly/ffgQqA writes @ippr's Tony Dolphin

Comments are closed.