Rishi Sunak's government has borrowed less than expected in the 2022-23 financial year, around £13 billion less than expected in previous forecasts. The lower borrowing was due to the tightened purse string policies, which lead to even lower than expected public spending.
The Office for National Statistics (ONS) reported that public spending was £17 billion below the Office for Budget Responsibility’s predictions, despite high cost items such as the Energy Bill Discount Scheme that costs the public purse over £40 billion.
Now, could that newly freed up £13 billion lead to tax cuts in the future?
The subsidies provided during the ongoing energy crisis, were the cause of a near £20 billion increase in borrowing year-on-year. However, now that the government's finances have improved, this may lead the Chancellor Jeremy Hunt to pull a rabbit out of his hat in his Autumn Statement later this year and lower some taxes - Particularly with the looming General Election (Before January 2025) and the dismal results for the incumbents in the recent Local Elections.
The borrowing deficit has now been reduced by 15 percent of GDP to under 6 percent over the last two years but tax revenues for the Treasury are lower than forecast by £4 billion. Due to this the OBR feels another two years are required to bring the deficit under £100 billion - which would be the target of around 3 percent of GDP.
So, while attempting to hit that target with higher taxes, less spending (even lower than forecast) and more economic activity than in the pandemic period, Hunt would have space for pre-Election tax cuts in the 2024-2025 tax year.