Government borrowing falls to fresh 17-year low as income tax revenue grows by £3bn

Government borrowing has fallen to a fresh 17-year low so far this financial year as the UK's strong labour market saw income tax revenue increase by £3bn.

Public sector borrowing from April 2018 to February was £23.1bn, the lowest year-to-date borrowing since 2001 and £18bn less than the previous year, according to the Office for National Statistics (ONS).

Read more: Government borrowing falls to 17-year low

In February itself net borrowing was lower than forecasts at £200m, and £1bn less than the same month in 2018.

ONS said self-assessed tax receipts were "particularly high" in January and that late payments often spilled over into February.

Over the two months combined receipts or self-assessed income tax and capital gains tax were £27.5bn, an increase of £3bn on the same period in 2018.

"The short-term improvement in the public finances means that Philip Hammond has capacity to increase spending on under-pressure public services, while potentially cutting taxes to provide an economic boost," Martin Wheatcroft advisor to the Institute of Chartered Accounts in England and Wales (ICAEW) said.

"“However, he, like the rest of us, is waiting to see what happens with Brexit," he added.

Read more: Hammond has the cash to end austerity, IFS says

Capital Economics said it kept the Chancellor "broadly on track" to hit his 2018-19 full-year borrowing target of £22.8bn with just month left to come.

Its chief UK economist Paul Dales said: "That leaves the Chancellor well placed to loosen policy to support the economy in a no deal Brexit, if that's where we end up."