Xinhua Finance London, Feb. 22 (Reporter Zhang Yadong) The latest data showed that the UK's fiscal situation improved in January.
According to data released by the Office for National Statistics on the 21st, the British budget surplus reached 16.7 billion pounds in January, more than double the level of the same period last year, due to revenues exceeding expenditures. This is also the highest since records began in 1993.
The January budget surplus exceeded expectations, which improved the UK's fiscal position. In January, the UK's fiscal deficit fell to £96.6bn in the current financial year, which began in April last year, £3.1bn lower than the same period last year. This is the first time since the beginning of the current fiscal year that the financial position is better than the previous fiscal year. As of January, the UK's net public sector debt stood at £2,646.5 billion, or 96% of GDP5%, which is higher than the 96 previously estimated by the UK's Budget Office7% is 02 percentage points.
The UK's fiscal position has improved, and market expectations for a tax cut in the UK** in March are starting to rise. Data from the Office for National Statistics last week showed that the UK economy fell into a technical recession at the end of last year, and the UK economy failed to meet the growth target set by the UK at the beginning of last year. Since the Bank of England is not in a position to cut interest rates for the time being, the UK Treasury is tasked with promoting economic growth.
At the same time, this is what the UK Treasury has repeatedly hinted to the market - in order to promote economic growth, the UK Treasury has focused on tax cuts. In the autumn statement released in the fourth quarter of last year, British Chancellor of the Exchequer Jeremy Hunt has reduced the National Insurance tax rate for British citizens from 12% to 10%, and at the same time, the previous tax relief for companies investing in new equipment will become a permanent measure, which Hunt called "the largest corporate tax reduction in modern British history". Since the beginning of this year, Hunt has repeatedly hinted that the necessary tax breaks will be made to boost economic growth. The market expects another tax relief in the spring fiscal statement to be published by the UK Treasury in March, according to Hunt's latest hints. And the tax reduction this time is likely to be mainly focused on personal income tax.
But there are two major problems that will arise here. First, how much room does HM Treasury have to cut taxes?
There was a certain chance that the UK's fiscal position improved in January. Due to the tax system, the UK usually collects more tax revenues in January, so there is often a budget surplus. This situation occurred in both January 2022 and January 2023. This year, unlike previous years, the January budget surplus was significantly higher than in previous years.
At the same time, January's budget surplus did not significantly change the share of public sector borrowing. As of January, the UK's public sector net debt was 96 percent of GDP5%, which is 18 percentage points, also the highest percentage since 1960.
As a result, while the improved fiscal situation may push the UK Treasury to implement further tax cuts next month, there is little room for some institutions. In response to the latest financial data, Michal Stelmach, senior economist at KPMG UK, pointed out that the latest data shows that UK** borrowing could reach £114 billion by the end of the 2023-24 financial year. The UK** Office for Budget Responsibility will raise its fiscal outlook as interest rates will fall and spending will fall, which will increase the Treasury's room to cut taxes to £21bn from £13bn in last autumn's statement.
Second, even if tax cuts are possible, it is difficult to say what impact it will have on the UK economy at the moment. For the British academic community, the tax cuts in the UK are not only unsatisfactory, but even considered very irresponsible. Pranesh Narayanan, a researcher at the Institute for Public Policy, one of the UK's think tanks, noted that the UK's chronic underinvestment in hospitals, schools and infrastructure "has caused a collapse of public sector services and a collapse of the economy". For the UK**, the current recession is a "wake-up call" that "public investment should be prioritised over irresponsible tax cuts". Considering the actual financial situation in the UK, the Institute of Directors, one of the UK's think tanks, did not mention tax cuts in its spring budget proposal to the Treasury, but recommended that companies be exempted from spending on training shortages. In its latest World Economic Assessment, the International Monetary Fund (IMF) has explicitly recommended that the UK should not try to cut further taxes in order to ensure spending on public services.
Editor: Wang Shurui.
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