UK public sector borrowing came in lower than expected in August, buoyed by an increasing tax take and falling interest payments.
Figures from the Office for National Statistics showed borrowing rose to £11.6 billion last month. This was £3.5 billion more than August 2022 and the fourth highest August since records began in 1993. However, it came in below the £13 billion that the Office for Budget Responsibility had forecast in March.
The better-than-expected figures will raise speculation as to whether the Chancellor will reform taxes ahead of next year’s election.
Danni Hewson, head of financial analysis at AJ Bell, said: “There’s little doubt the Chancellor will be coming under increasing pressure to yank the magic money tree out from under the stairs and plant it proudly in the garden of Number 11 ahead of the next election.
“Borrowing for the year to date has been substantially lower than had been forecast by the OBR thanks to an increasing tax take and falling interest payments as inflation continues to cool. But spending is still uncomfortably high and with the anniversary of the disastrous mini-Budget just a few days away, there will likely be a reluctance to move away from ultra-prudent policies.”
The figures showed that Inheritance Tax receipts from April to August 2023 reached £3.2 billion, up £0.3 billion on the same period of last year. The total inheritance tax take for the 2022-23 tax year was £7.1 billion, putting this year’s tax take on course to break new records.
Rachael Griffin, tax and financial planning expert at Quilter, said the increasing revenue poses a “policy conundrum” for the government as election season approaches and more Tory backbenchers call for inheritance tax reform or its abolition in a bid to win votes.
Griffin said: “Increasing the inheritance tax threshold to £1m is one of the latest to be tabled, and while it would likely be a crowd pleaser, the government might be less keen given the ever-increasing revenue it is seeing from the tax.
“The Chancellor has extended the IHT threshold freeze until at least April 2028, and it is looking likely to rake in record amounts by stealth. Higher property prices have upped the number of households falling in the scope of IHT, and while growth has slowed in the housing market, we are still yet to see a significant drop in prices.”
Frozen IHT thresholds form part of a broader strategy to boost revenue, which includes frozen income tax thresholds, capital gains tax allowances and dividend allowances. The figures showed receipts from PAYE income tax and national insurance payments for April to August 2023 were £170.7 billion, a jump of £9.5 billion on the same period a year earlier, with further rises expected.
