According to City AM’s Julian Harris:
The government’s preferred measure of borrowing, which excludes financial sector interventions, revealed a £3.7bn surplus, as tax revenues soared.
Predictably, this has led to people asking, ‘what will Osborne do with the spare money?’ But that’s a very silly question.
After all, we may have a surplus for January, but we’re still on course to have borrowed £140bn in the current financial year. That’s equivalent to the government borrowing £16m per hour, every hour, throughout the 2010/11. It’s hardly a shining example of fiscal rectitude.
Moreover, I would be surprised if tax revenues stayed as strong as they were in January. That’s partly because I don’t see the UK’s growth prospects as being that strong – we’re so weighed down with debt, not to mention taxes and regulation that we’ll be lucky to tick along at 1.5 percent.
The Spectator’s Fraser Nelson has another theory about the high January tax revenues:
[T]he tax paid last month was in respect of the 2009-10 tax year – when the top rate of tax was 40p… Today’s surprise tax haul can be partly explained by the fact that folk sucked forward their income, to avoid the 50p rate. That’s what high-paid people do.
Given that income tax receipts were up 18.9 percent year-on-year for January, that may be an astute observation.
But regardless, the key point is that the government shouldn’t even be thinking about spending this so-called ‘surplus’. And for what it’s worth, I don’t believe they are.
What they should be thinking about is policies that encourage growth. Economic growth will keep tax revenues buoyant and make spending cuts much easier to sell. No wonder it is meant to be the key focus of Chancellor Osborne’s upcoming budget.