New revenue figures tee up consequential Spring Forecast

Isabel Stockton is a Senior Research Economist at the Institute for Fiscal Studies. Responding to new Office for National Statistics figures on government revenues, spending and borrowing, they said:

“Today’s revenue data came in lower than forecast but doesn’t tell us a great deal about the overall fiscal outlook heading into the Spring Forecast on 26 March. What the data do highlight is how much more the government plans to borrow this year relative to when Rachel Reeves took office as Chancellor. This extra borrowing in the short term is coupled with the promise of fiscal restraint in future, but it remains to be seen whether this will be enough to meet her ‘non-negotiable’ fiscal rules without further tax rises or even tighter spending plans. If – and it is still very much an if – the forecast moves against the Chancellor, she’ll face a truly unenviable set of choices – none of which are made easier by the upwards pressures on defence spending.” 

Figure 1: Borrowing, out-turn and forecasts

Notes: Public sector net borrowing shown.

Sources: Office for National Statistics, Public Sector Finances Time Series (series ID J5II) and Office for Budget Responsibility, Economic and Fiscal Outlook (October 2024): monthly profiles

Today, the Office for National Statistics published new figures on government revenues, spending and borrowing.

• Government usually runs a surplus in January. In other words, it raises more than it spends. This year, the January surplus was £15.4 billion according to today's initial estimate. This is £5 billion, or 25% less than the OBR forecast last October, but similar to last year. This leaves borrowing for the year so far around £13 billion higher than was forecast in October.
• This is also much more borrowing than was planned last March. The Chancellor’s plans for much higher spending in the short term followed by fiscal restraint in the medium term always looked difficult to deliver and were only just enough to meet her fiscal rule back in October. It remains to be seen whether that is still the case at the upcoming Spring Forecast.
• A large share of self-assessment income tax revenue is paid in January each year. This January, self-assessment tax receipts were £3 billion, or 10% below the OBR’s October forecast, contributing to the smaller-than-expected monthly surplus. Monthly estimates are noisy, and receipts could well overperform in February, but if they did not, this would chime with some of the disappointing growth data seen in recent months.
• Debt interest spending in the ten months since April 2024 remains very close to the OBR's forecast from last October. However, recent volatility in market interest rates highlights the ongoing fiscal risk associated with debt interest costs.

We should not place too much weight on figures from any single month. These figures be revised and revised again, and do not meaningfully affect the overall fiscal outlook. When it comes to the choices available to the Chancellor, what happens to revenues, spending or growth in-year matters less than how much bounce back the Office for Budget Responsibility expect for the medium term, when her fiscal rules bind.