Osborne to hit deficit target after biggest surplus since 2007

January’s figures should bring a smile to the Chancellor's face

The biggest surplus for the nation’s public finances since the financial crisis has put the Government on course to hit its deficit target this year, experts said yesterday.

January is traditionally a good month for the Treasury because of corporation tax receipts and self-assessment income tax returns. Helped by a recovering economy, the UK saw a £8.8bn surplus – £2.3bn bigger than a year earlier, and the biggest for seven years.

After years of disappointment on growth and sluggish tax receipts – which consistently pushed borrowing targets higher – experts said the tax windfall put the Chancellor on course to at least match the £91.3bn borrowing target set by the Office for Budget Responsibility (OBR) in December. Borrowing for the 10 months of the financial year to date is £74bn, £6bn below last year.

Samuel Tombs, a senior UK economist at Capital Economics, said: “January’s UK public finance figures should bring a smile to the Chancellor’s face insofar as they show that the economic recovery is finally having a positive impact on the public purse.”

The figures showed a 15.6 per cent rise in self-assessment income tax receipts in January, slightly below the 18 per cent growth forecast by the OBR. But the slight weakness was more than offset by other tax receipts. The corporation tax take leapt 12.1 per cent on last year to £8.3bn. VAT takings – another big earner for the Treasury – were 2.1 per cent higher. This more than cancelled out a 15 per cent fall in stamp duty to £718m, reflecting a cooler housing market.

Revisions to previous data also lowered borrowing by £3.6bn, while the spending figures were helped by lower interest payments on inflation-linked debts, leaving the Government’s current spending at £52.4bn over the month, slightly below last year.

Soumaya Keynes, an economist at the independent Institute for Fiscal Studies, said: “Over the year so far, overall tax receipts and overall public spending have grown broadly as expected by the OBR for the year as a whole. Borrowing this year therefore looks likely to come in close to the forecast.”

Economists cautioned that income tax receipts this January would have been affected by high earners who deferred bonuses into the 2013-14 year to take advantage of the cut in the top rate of income tax to 45 per cent. But it leaves George Osborne only having to equal the combined £17.3bn borrowing seen in February and March last year to match the deficit.