UK public borrowing was £12.9bn lower than official forecasts in the financial year to December, leaving the chancellor Rishi Sunak with enough fiscal room to hold off on a rise in national insurance tax planned for April.
Public sector net borrowing was estimated to have been £147bn, nearly half of that in the same period the previous year, data from the Office for National Statistics showed on Tuesday.
The figure came in £12.9bn under official forecasts by the Office for Budget Responsibility made in October, a similar value to the £12bn tax national insurance rise planned for spring to fund the NHS and social care.
“Our forecasts imply the chancellor would have enough fiscal room to cancel the scheduled increase in national insurance contribution on 1 April to cushion the blow for households,” said Bethany Beckett, economist at Capital Economics, a consultancy.
“This fiscal room for manoeuvre makes it inevitable that the chancellor will set out a plan to deal with the cost of living crunch,” said James Smith, research director at the Resolution Foundation think-tank.
UK prime minister Boris Johnson on Monday repeatedly refused, in a television interview, to confirm the national insurance rise would go ahead in April.
On Tuesday, Johnson’s spokesperson, asked whether the NI rise would definitely to ahead, replied there were “no plans” to change the timetable for introducing it, rather than replying simply “yes”.
Sunak and Johnson are scheduled in the coming days to hold talks on how to mitigate the cost of living crisis, focused particularly on rising energy bills.
The chancellor’s allies insisted there are “no discussions” on postponing the NI rise taking place. Sunak is well aware that if the tax rise is delayed, it will become progressively harder to introduce it as the next general election approaches.
Traditionally, chancellors prefer to raise taxes early in a parliament, using any fiscal headroom to cut taxes nearer to an election.
Michal Stelmach, senior economist at KPMG UK, noted that the UK is one of only a few countries in Europe that has not introduced any support measures to shield vulnerable groups from higher prices, after inflation rose to a 30-year high in December.
That month, UK borrowing was estimated at £16.8bn — £7.6bn less than in December 2020 when most of the country was under tight pandemic restrictions. Borrowing levels for that month were also lower than the £18.5bn expected by economists polled by Reuters.
Meanwhile, central government receipts came to £68.5bn last month, up 10 per cent compared with December 2020, boosted by stronger tax receipts as the economy continued its recovery.
Total government spending came to £86.7bn last month, down £1bn from the same month in 2020, reflecting savings of £8.2bn from the pandemic job-retention and self-employment support schemes that ended in October.
However, some of the government savings were offset by higher spending on the NHS Test and Trace programme and the cost of Covid vaccines.
Interest payments more than doubled to £8.1bn compared with December 2020 owing to high retail price inflation to which some of the government debt is pegged.
Sunak said: “Risks to the public finances, including from inflation, make it even more important that we avoid burdening future generations with high debt repayments.”
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