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IEA - Chancellor has headroom for tax cuts, public finance data suggests

Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs Commented on yesterday’s ONS public sector finances figures

Commenting on today’s ONS public sector finances figures, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:

“The public finances data is, once again, not as bad as feared. Borrowing in the year ending in March has come in £13.2 billion below the forecast from the Office for Budget Responsibility (OBR). This suggests the Chancellor has more headroom for pre-election tax cuts and other sweeteners.

“The lower borrowing is partly due to buoyant tax receipts, reflecting stronger activity and higher inflation, which increases revenues by boosting cash incomes and spending. Expenditure is up sharply too, but this includes the energy subsidies which should not be needed much longer.

“The OBR’s forecast error (in the context of public sector spending and income that are both over £1,000 billion) is forgivable. Nonetheless, it highlights how the current fiscal framework places far too much weight on a single set of OBR forecasts that will almost inevitably turn out to be wrong.

“New figures on the state’s overall balance sheet remind us of the longer-term challenges. The UK’s ‘public sector net worth’ shows that liabilities exceed assets (by £606 billion) at the end of March. This is much smaller than the usual measure of public sector net debt (£2,507 billion) and not really a surprise. This measure should help focus minds on the long-term sustainability of the public finances and make the government face up to all its liabilities.”

Public sector finances, UK: March 2023

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