Is there finally wiggle room for pre-election tax cuts?

by | Aug 22, 2023

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  • Borrowing for the financial year to date £11.3 billion lower than forecast
  • Strong self-assessment and VAT receipts boosted tax take to £85.2 billion in July – £2.3 billion more than forecast by the Office for Budget Responsibility (OBS)
  • Gains offset by increased benefit payments and high interest on government debt

Danni Hewson, head of financial analysis at AJ Bell, comments on the latest public sector finances:

“It’s by no means time to rush to pop the fizz but the UK economy is clearly muscling through the headwinds of inflation and rate hikes with surprising resilience.  

“Government borrowing undershot expectations in July by a considerable sum, thanks in part to an increased tax take from self-assessment returns and higher VAT contributions.

 
 

“Perversely the inflation that’s ravaged our living standards has also bolstered the treasury’s coffers though even that is a double-edged sword.

“The cost of servicing all that debt has shot up to a record £7.7 billion for the month of July, though even that was lower than the government’s spending watchdog had forecast.

“The chancellor has responded to today’s figures with textbook precision, urging continued caution, fiscal responsibility and no detours from the current conservative course.

 
 

“But privately he must be letting out a rather large sigh of relief that these numbers at least give him a bit of wiggle room to consider crowd-pleasing tax cuts before the next election.

“Whilst he might now be able to cast his eyes over a selection of rabbits, there’s no guarantee they’ll be suitably fattened up by the time he needs to pull one from his chosen receptacle.

“High rates and an unstable inflation trajectory suggest the economy isn’t out of the woods and is likely to weaken.

 
 

“With unemployment rising and growth stuck on the hard shoulder there’s a real risk the tax take will be a casualty and if the cost-of-living crisis doesn’t ease there will be more pressure on the government to step in once again.” 

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