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United Kingdom government surplus gives Philip Hammond pre-Budget boost

22 February 2017

It said the OBR will amend its outlook after seeing a bigger haul from tax receipts and a stronger performance from United Kingdom gross domestic product (GDP) in the fourth quarter of 2016.

Self-assessment income tax receipts in January 2017, which related to income received in the 2015-16 financial year, were boosted by people bringing forward dividend payments to avoid paying a higher rate of tax on dividend income from April 2016. This represented an increase of GBP 91.7 billion since January 2016.

John Hawksworth, chief economist at PwC, said that even though the £9.4bn surplus was below market expectations, it indicated that the budget deficit for 2016/17 was set to come in below £60bn. If the United Kingdom economy remains stable over the transition period once article 50 is triggered, Hammond could meet his objective to reduce the budget deficit below 2% GDP by 2020-21, while offering a few small giveaways.

The modest boost in January's tax receipts is expected to put the chancellor, Philip Hammond, in a position to ease some of the Treasury's planned austerity in the next financial year when he stands up to deliver his first full budget in a fortnight.

The Chancellor will base his budget calculations on updated figures on growth and borrowing supplied by the Office for Budget Responsibility (OBR).

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said the Government was on course to undershoot the OBR's predictions, but expects the UK's finances to "deteriorate" in the final two months of the financial year.

However, the surplus was below the expected level of GBP 14 billion.

This implies that borrowing fell more quickly over the first nine months of the current financial year than the figures published a month ago suggested.

The methodological changes announced Tuesday are created to smooth the path of corporation-tax receipts away from the large-scale payments now seen every three months.

The statistics agency said the figure was the highest amount since records began in April 1999.

"This would be well below the OBR's estimate of around £68 billion in November, although probably still higher than the pre-referendum estimate of £55.5 billion at the time of the March 2016 Budget". In the February and March previous year, the combined deficit stood at 8.7 billion pounds.

Changes in methodology lowered the corporate tax revenue estimate for January as receipts were smoothed over the year and the January data would have recorded a surplus of over £15.0bn under the previous accounting method.