Blow for Jeremy Hunt’s tax cut hopes as borrowing beats expectations in April
Jeremy Hunt’s hopes of cutting taxes again before the election received another blow after government borrowing came in ahead of expectations in April.
According to figures from the Office for National Statistics (ONS), the difference between government income and spending last month was £20.5bn.
This was £1.2bn more than forecast by the Office for Budget Responsibility and ahead of economists’ expectations too. Borrowing in the 2024 financial year was also revised up slightly.
“While central government spending and income overall both rose on this time last year, a large drop in National Insurance contributions meant receipts did not grow as fast as spending,” ONS Chief Economist Grant Fitzner said.
Higher debt payments also contributed to the borrowing overshoot, with the government having to pay £8.6bn to service its debt in April. This was the highest amount for 10 months.
Economists closely watch the borrowing figures for any indications of how much fiscal space the Conservatives will have to cut taxes ahead of an election later this year.
In a speech earlier this week, Chancellor Jeremy Hunt said that he would seek to reduce National Insurance again before the election “if we can afford to”. Hunt has already cut 4p off National Insurance Contributions, costing around £20bn.
Alex Kerr, assistant economist at Capital Economics said this morning’s figures cast “further doubt on the Chancellor’s ability to unveil big tax cuts at another pre-election fiscal event later this year”.
The latest borrowing figures come shortly after the government received a warning from the International Monetary Fund (IMF) about the state of the public finances.
In its annual health check on the UK economy, the Washington based body said the government needed to find an extra £30bn to stabilise its debt burden.
“Difficult choices will need to be made over the medium term to stabilise public debt, given significant pressures on public services and critical investment needs,” it said.
The IMF criticised Hunt’s decision to reduce National Insurance and said that the government should not cut taxes again before an election.
Despite the Chancellor’s cuts to National Insurance, the tax burden is still expected to rise to 37.1 per cent of GDP in 2028-29, four percentage points higher than pre-pandemic.
The UK’s debt to GDP ratio was estimated to be 97.9 per cent, 2.5 percentage points higher than last year.