Jeremy Hunt handed £20bn of headroom for tax cuts this March

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Jeremy Hunt has been handed a lift forward of his March Budget after authorities borrowing got here in lower than anticipated in December.

The chancellor, who has in contrast himself to his tax-cutting predecessor Nigel Lawson and vowed a giveaway this spring, will now have extra wiggle room to decrease taxes.

The authorities borrowed much less final month than in any December for 4 years, however debt stays at historic highs, official figures confirmed.

The Office for National Statistics (ONS) mentioned that public sector web borrowing hit £7.8bn in the course of the month.

That was round half, or £8.4bn lower than, a yr earlier and the bottom in any December since 2019. Experts had anticipated it to hit £11.4bn.

And, due to decrease inflation, the curiosity that the Government paid on loans was £4bn in December 2023, which is £14.1bn lower than a yr earlier.

The Resolution Foundation suppose tank mentioned Mr Hunt had been handed a “timely boost” forward of the March Budget.

Senior economist Cara Pacitti mentioned: “Lower-than-expected inflation late last year has reduced debt interest costs and given the chancellor a timely fiscal boost ahead of his Budget in March.”

And analysts Capital Economics mentioned Mr Hunt might nonetheless meet his fiscal rule, that debt needs to be falling as a share of nationwide revenue in 5 years’ time, with about £20bn to spare for tax cuts.

Deputy chief UK economist Ruth Gregory mentioned that can most likely permit Mr Hunt to freeze gasoline responsibility in April 2024 at a value of round £6bn a yr, however maybe additionally to announce extra crowd-pleasing measures. She added {that a} a 1p reduce to revenue tax would price £6.9bn a yr and “maintain fiscally prudent appearances”.

It comes after Mr Hunt claimed that the federal government’s “careful management of the economy” meant he might “start cutting taxes again”.

He went on to liken his document to that of the late Lord Lawson, who presided over a turnaround within the economic system with a tax-cutting coverage to assist Margaret Thatcher win her third time period in 1987.

Mr Hunt wrote: “Just as Nigel Lawson positioned the City of London for the finance boom in the 1980s, this period of Conservative government has seen the UK positioned for the massive technological boom we’re set to see in the coming years.”

It is believed Mr Hunt will choose for private tax cuts, by way of both nationwide insurance coverage or revenue tax, to please voters forward of an election anticipated this autumn, because the Tories lag Labour within the polls.

Rishi Sunak has additionally promised there’s “more to come” in March, after the federal government reduce the speed of nationwide insurance coverage in November’s autumn assertion.

But Ms Pacitti warned that decrease inflation can be prone to imply decrease tax receipts, affecting how a lot room for manoeuvre Mr Hunt can have.

And whole web debt was nonetheless £2.69tn on the finish of the yr, which is round 97.7 per cent of the scale of the economic system, or gross home product (GDP).

Despite the autumn in web borrowing final month, the debt to GDP ratio is 1.9 proportion factors above final December and nonetheless at ranges not seen for the reason that early Sixties.

“Protecting millions of lives and livelihoods during Putin’s energy shock and a once-in-a-century pandemic has created economic challenges,” mentioned Chief Secretary to the Treasury Laura Trott.

“However, it is right that we pay back these debts so future generations are not left to pick up the tab. Because of this Government’s decisive action, the economy is now beginning to turn a corner. Inflation has more than halved.

“Debt is on observe to fall as a share of the economic system. And we’ve got been in a position to afford tax cuts for 27 million working folks, and an £11bn tax reduce to drive enterprise funding.”

Interactive Investor’s head of funding Victoria Scholar mentioned: “The reduction in December’s borrowing is a win for the government, providing some fiscal wiggle room to cut taxes in a crucially important year for the Conservatives.”

“The fall in inflation acts as a tailwind to the public purse by reducing the government’s debt interest costs which jumped on the back of rising inflation and interest rates,” she added.