- Written by Lucy Hooker
- BBC News business reporter
The government's finances showed a large surplus last month, more than double the surplus in January last year.
The surplus, the difference between spending and tax revenue, rose to £16.7bn in January, according to the Office for National Statistics (ONS).
These are the last fiscal figures to be released before the Chancellor's Budget in March.
Despite the highest nominal surplus since monthly statistics began in 1993, it was lower than most economists expected.
However, calls for further tax cuts are still likely to rise in the upcoming budget, with many seeing this as the government's last chance to win over voters before the general election later this year.
The ONS said the surplus was the result of higher tax revenues and lower spending, for example because the government no longer subsidized household energy bills.
According to the ONS, the government tends to collect more tax in January each year than it spends in other months, as self-assessed tax payments increase.
Furthermore, the cost of financing UK debt has also fallen as inflation has fallen.
Jessica Barnaby, deputy director general for the public sector at the ONS, said: “Despite an increase in spending on public services and benefits, overall spending was down on this time last year.
Treasury Secretary Laura Trott said: “I won't speculate on whether further tax cuts are possible in the Budget, but with inflation falling from over 11% to 4%, the economy is starting to turn the corner.”
For the full year to April, the government expects to receive between £10bn and £20bn less than expected. Chancellors usually allow some fiscal space for unexpected changes in economic fortunes.
Susannah Streeter, head of finance and markets at Hargreaves Lansdown, said while the figure would line the Chancellor's coffers, it was not enough to mark it as a “budget smash”.
“Mr. Hunt has a few inches of breathing room, but not enough to budget for significant tax cuts,” she said.
Capital Economics, an economic think tank, suggested that taking advantage of the extra room for maneuver that a surplus would give the prime minister would amount to “prioritizing election over prudence”.
In the year to April 2023, public borrowing totaled £96.6bn.
The UK's overall debt is higher than a year ago, reaching around 96.5% of the size of the economy as measured by GDP, and remains at levels last seen in the early 1960s, the ONS said.
One of the government's key commitments is to reduce the debt-to-GDP ratio within five years.
The debate over whether January's government budget surplus leaves room for tax cuts is taking place against a complex economic backdrop.
The latest growth figures show the UK entered a shallow recession in the second half of last year, but the Bank of England governor suggested this week that there were already “clear signs of an upturn”.
The Resolution Foundation warned that if the Prime Minister were to implement tax cuts in the next budget, it would create a “tax sandwich'' in which tax cuts would be sandwiched between large tax increases in the preceding and several years.
James Smith said: “In this election year, massive tax cuts are sandwiched between much larger tax increases already introduced last year. And, very unusually, the government has already voted “We are announcing a major tax increase plan that will go into effect in the next few days.” Director of Research at the Resolution Foundation.
