Bumper income tax receipts result in a January surplus of �3.7bn and put the coalition on track to meet its borrowing targets
The government finances recorded the biggest surplus in two-and-a-half years last month as bumper income tax and VAT receipts swelled the public coffers.
The figures beat City forecasts and provided a boost to the government, although it stressed that it needs to push on with planned austerity measures to reduce record debt levels.
The government's preferred measure, public sector net borrowing excluding the impact of the banking bailout, showed a surplus of �3.7bn, compared with a shortfall of �1.3bn a year ago. January usually brings a surplus because annual income tax bills are due that month.
Last month's surplus leaves the deficit for the first 10 months of the fiscal year at �113bn, �14bn lower than last year's figure. If this trend continues, borrowing will come in some �10bn below the Office for Budget Responsibility's �149bn forecast, City economists say, giving the chancellor more wiggle room at his budget on 23 March.
A Treasury spokesman said: "It's welcome that this January saw the first surplus for the public finances in two years, but it will take more than one month to deal with borrowing of almost �150bn for this financial year. The government is determined to stay the course to deal with this unsustainable borrowing, and keep Britain out of the financial danger zone."
Income tax receipts climbed to �32.2bn in January from �27.4bn a year ago, while the VAT increase to 20% from 17.5% on 4 January boosted the take from the tax to �8.5bn from �7.6bn.
However, the government is also paying more interest than last year, �4bn compared with �3.8bn, and it paid �14.1bn in social benefits, up from �13.9bn.
"Though overall revenues have picked up thanks to the boost from the higher rate of VAT, the government still has a long way to go in terms of reigning in its expenditure," said Hetal Mehta at Daiwa Capital Markets. However, on this trend she expects borrowing to reach �140bn in 2010-11, undershooting the OBR's forecast.
"But looking further ahead, we are less sanguine about the outlook. With growth set to remain subdued over the coming quarters and unemployment rising, there is a real danger that the government will end up borrowing more than it currently expects. Next month's budget will be crucial to assessing how committed the government is to bringing the public finances into order, and whether any slippage will be tolerated."
Source: http://www.guardian.co.uk/business/2011/feb/22/government-finances-biggest-surplus-2008
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