The government’s finances improved last month to post their biggest surplus in seven years, after an influx of delayed payments from wealthy taxpayers who benefited from a cut in the 50p top rate of tax.
Income tax receipts jumped 6.1% to £26.7bn, pushing the public finances £8.8bn into the black for the month – the largest monthly surplus since 2008.
The figures, which put the government on track to meet its annual deficit reduction target, will cheer Tory backbenchers who have seen the Treasury consistently borrow more than projected over last four years. The Office for Budget Responsibility has forecast the annual deficit to be £91.3bn in the year to April, which is £6bn below last year’s result, reducing the debt to GDP ratio from 5.7% to 5%.
The chancellor, George Osborne, hailed the surplus as a sign that the economy is improving, but critics warned it was largely a one-off event that benefited from bumper self-assessment receipts in January.
Self-assessment played the main role in boosting income-tax receipts, rising by £1.7bn, or 15.6%, to £12.3bn compared with January 2014. While some of the gain has come from a surge in the number of self-employed workers, most of the rise is attributed to the richest taxpayers who delayed payments until this financial year to benefit from the new 45p top rate of tax.
Chris Leslie, Labour’s shadow chief secretary to the Treasury, said the government would still borrow more than £200bn more than planned. “As the ONS says, today’s figures are distorted by bonuses at the top, which were delayed from 2012-13 to 2013-14 to take advantage of the top-rate tax cut. This is something which has cost the taxpayer hundreds of millions of pounds,” he said.
The main parties have battled over the effect of the coalition’s cut in the top rate of tax from 50p to 45p, which encouraged highly paid lawyers, accountants and City executives and business owners to delay when they declared profits to the tax authority.
Labour has argued that the effect of the 50p tax rise was undermined by Osborne’s promise to cut it back to 45p and the forestalling on tax payments that followed.
Sumita Shah, a spokesman for the Institute of Chartered Accountants for England and Wales, said the increase in self-assessed income tax receipts was “reassuring” and rising employee earnings growth should also help pave the way for an increase in income tax receipts in the coming months.
“However, public sector net debt has increased by £86.1bn compared with a year ago, and rising tax receipts alone won’t eliminate the deficit. We’re looking at some deep government spending cuts in the next parliament,” he said.
David Kern, chief economist at the British Chambers of Commerce, said: “While these latest results are positive for the UK and should help strengthen our credit rating, the long-term challenges persist.
“The UK’s ability to generate tax receipts has shrunk considerably since the financial crisis, meaning that the next incoming government will have to persevere with a credible plan to improve public finances. Only by implementing a long-term strategy for reducing the fiscal deficit will it be possible to create the conditions for businesses to drive a sustainable recovery.”
Nevertheless, the boost puts the public borrowing figures on track to meet reductions predicted by the Office for Budget Responsibility in its analysis of the last autumn statement.
Chris Williamson, chief UK economist at financial data provider, said the surge in income tax receipts reflected a long-awaited inflow of self-assessment revenues to the exchequer. “The improvement is a boon to the coalition government ahead of May’s general election.”
The ONS said a rise in corporation tax receipts also helped the public finances improve after a near £1bn rise on the same month last year to £8.3bn.
A slight fall in stamp duty receipts on the sale of shares, land and property was the only drag on the figures. Stamp duty, which roared to post-financial crisis highs last year on the back of a strong property market, fell by £100m, or 11.4%, to £1bn.
Osborne said:“In a week of economic milestones, today we learn that January saw the largest monthly surplus in the public finances since the crisis, putting us on track to meet our borrowing forecasts and halve the deficit as a share of GDP this year.”
Government borrowing for the first 10 months of the current tax year fell to £74.0bn as a result, down £6bn, or 7.5% on the previous year, the ONS said.
This article was written by Phillip Inman, economics correspondent, for theguardian.com on Friday 20th February 2015 11.32 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010