Lower debt interest costs give Chancellor a borrowing boost ahead of the Budget 21 February 2024 Lower than expected spending offset weaker than expected tax receipts in the year to January, while significant data revisions have left overall borrowing £9.2 billion lower than the Office for Budget Responsibility’s (OBR) forecast, and given the Chancellor a timely fiscal boost ahead of his Budget next month, the Resolution Foundation said today (Wednesday). Self-assessment returns mean that January always delivers a surplus for the government and this year was no exception, with the £16.7 billion surplus the biggest since records began in 1993. However, self-assessment returns were actually lower than the OBR forecast (down £2.4 billion), with total taxes nearly £5 billion lower than the OBR expected. This was slightly offset by lower than forecast spending as a result of falling inflation – leaving borrowing for January higher than forecast by over £1.5bn. But over the year to date, significant data revisions and lower spending have outweighed lower tax receipts, leaving borrowing £9.2 billion lower than the OBR forecast. The Foundation adds that lower interest rate expectations over the medium term are also likely to reduce the OBR’s borrowing projections, and increase the Chancellor’s fiscal headroom in his upcoming budget. Cara Pacitti, Senior Economist at the Resolution Foundation, said: “The public sector finances story in recent years has been stronger tax receipts driven by high inflation, and high borrowing costs due to rising interest rates. “But despite the record surplus in January this story has actually flipped, with tax receipts disappointing and falling inflation reducing the cost of borrowing. “Lower interest rate expectations are likely to reduce the medium-term outlook for borrowing, and give the Chancellor a borrowing boost in his upcoming Budget.”
