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Government insiders fear Jeremy Hunt will not be able to announce major tax cuts in his Budget despite getting a £9bn borrowing boost.
The Prime Minister wants to cut income tax or national insurance next month as a pre-election gift to taxpayers.
However, the Budget Oversight Committee’s final draft of its fiscal outlook is understood to show he has little or no additional cash available for tax cuts compared to his autumn statement.
This will force Mr Hunt to choose between abandoning his plans to reduce his tax burden, cutting future public spending, or reducing his ‘headroom’ to avoid breaching his self-imposed borrowing rules. .
Figures released by the Office for National Statistics (ONS) on Wednesday revealed that the government has borrowed £9bn less so far this year than previously expected.
The budget surplus in January was £16.7 billion, the largest surplus ever for a single month, but January is usually the Treasury’s best month due to the large number of taxpayers.
The data has sparked speculation that the Chancellor has added leeway in his Budget, with the Resolutions Foundation being quite optimistic, predicting that the Chancellor will have £23bn to spend before breaking fiscal rules. This is an increase from £13bn in the Autumn Statement.
But the Office for Budget Responsibility (OBR) has slashed the amount of headroom in the budget, bringing it closer to the previous figure of £13bn, according to people familiar with the OBR’s latest forecasts, which were submitted to the Treasury on Tuesday.
The numbers used to determine headroom (the difference between the expected amount of government borrowing and the maximum amount allowed under the rules) are calculated on a five-year basis, so this year’s borrowing amount is based on the OBR. The results may differ significantly from the conclusion.
Treasury insiders say the government’s long-term borrowing costs have been rising since the beginning of the year, while lower-than-expected inflation is hurting public finances by reducing regular tax revenues.
Asked about the ONS data, a No. 10 spokesperson said: “Overall, it is good news that we are making progress on key economic priorities, but the numbers are below OBR expectations and the job is far from done. It’s a reminder that we haven’t done anything yet and we need to stick to our plans.”
James Smith of the Resolution Foundation warned that it would be difficult for the government to achieve spending cuts in the future. “We are currently basing our fiscal outlook on a set of spending plans that are essentially unachievable,” he said.
Given that the government has promised to continue to increase spending overall, but also to beat inflation in the NHS, schools and defense spending, the Resolution Foundation has confirmed that other sectors will We predict that we will face a real reduction of 17%.
Martin Miklos, from the Institute for Fiscal Studies, said: “With public services under strain, pressure to offset some of the record tax increases seen since 2019, and debt trending downwards, a credible plan remains in place. “As it is necessary, the Minister of Finance will announce future policy.” Adjusting your budget won’t be easy. ”