Recent Government borrowing figures have raised concerns about the potential for tax cuts before the upcoming general election. Data from the Office of National Statistics (ONS) shows that borrowing was £6.6 billion higher than the OBR’s prediction, leading to a provisional estimate of £120.7 billion in borrowing for the financial year ending March 2024.
Public sector net debt (excluding public sector banks) reached an estimated 98.3 percent of Gross Domestic Product (GDP) at the end of March 2024, a 2.6 percentage point increase from March 2023. While tax receipts grew by 7.5 percent, interest payments declined by £29.3 billion. However, benefit payments rose by £36.9 billion, largely driven by inflation-linked upratings.
According to Danni Hewson, head of financial analysis at AJ Bell, these financial figures may limit the Chancellor’s ability to provide pre-election tax cuts. She highlights increased benefit payments, public sector wage increases, and fiscal drag as factors contributing to the higher borrowing. Additionally, a corporation tax hike and VAT increases further boosted government income.
Despite the healthy tax take, Hewson notes that public services are facing challenges and the high debt burden poses constraints on the government’s fiscal flexibility. While tax cuts may not be entirely off the table, she suggests that any such measures could have significant implications.
The government’s high debt as a percentage of GDP and the impact of the second round of National Insurance cuts remain areas of concern. However, the resilience of the economy amidst a recession is reflected in the healthy tax take. Balancing the need for fiscal stability with public service demands and potential tax relief measures will be key considerations for the government going forward.
