U.K. Posts Record Surplus in Pre-Budget Boost for Hammond

  • Hammond is on course to undershoot 2016-17 deficit forecast
  • Figures restated to reflect changes to corporation-tax income

Chancellor of the Exchequer Philip Hammond received a pre-budget boost as Britain posted the biggest surplus for any January since at least 2001.

The 9.4 billion-pound ($11.7 billion) surplus compared with 9.1 billion pounds a year earlier, the Office for National Statistics said Tuesday. Revenue rose 5.3 percent and spending increased 5.4 percent.

The figures are restated going back to April 2000 to include changes to the way corporation-tax receipts are accounted for. Under the previous system, the budget surplus in January was 15.2 billion pounds, the biggest since records began in 1997.

Hammond announces his annual budget on March 8, and the latest data suggest the deficit for the fiscal year through March is on course to come in well below the 68.2 billion pounds forecast by the Office for Budget Responsibility in November. The shortfall in the first 10 months was 49.3 billion pounds, down 22 percent on the year.

January is the biggest tax month of the year and the Treasury received an extra boost last month as business owners paid themselves dividends early to avoid a tax hike that took effect in April last year. Self-assessed income tax rose 10 percent on the year to a record 14 billion pounds as taxpayers rushed to beat the Jan. 31 deadline for filing returns for 2015-16.

Growth Dividend

Tax revenue overall has benefited from stronger-than-expected economic growth since the June vote to leave the European Union but officials expect Brexit to take a toll. A slowdown in consumer spending now under way is likely to hit value-added tax receipts, while accelerating inflation pushes up the cost of servicing index-linked gilts.

“Over the long term, the task of restoring public finances remains significant,” said Suren Thiru, head of economics at the British Chambers of Commerce. “If growth becomes more sluggish, as we expect, the U.K. will find it increasingly challenging to generate the tax receipts needed to deliver real progress in cutting the deficit.”

New forecasts from the OBR will be published along with the annual budget. Hammond has pledged to reduce the structural deficit to no more than 2 percent of national income in 2020–2021 and return the budget to overall balance by 2025, meaning Britain faces austerity for years to come. The deficit has fallen from almost 10 percent of GDP in 2010 to below 4 percent in 2015-16.

The methodological changes announced Tuesday are designed to smooth the path of corporation-tax receipts away from the large-scale payments previously recorded every three months.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE