Some personal news - it's my final day at @resfoundation.bsky.social, feeling very lucky to have worked with such a fantastic team, as well as excited to return to the civil service.
I'll be going quiet on here - but keep following @feliciao.bsky.social for all things housing!
New ONS public finances data out this morning look grim for the Chancellor. These are key data for next week’s Spring Statement providing a last chance to look at the fiscal position before we get new forecasts. A thread…
A reminder that while the Government's long-term aims to boost housebuilding are welcome - they should also be aiming to support the thousands of families dealing with the sharpest end of the housing crisis in the meantime.
Another quarter of grim homelessness statistics - with a record 126k households living in temporary accommodation by the end of September 2024, including 164k children.
www.gov.uk/government/s...
Cara Pacitti has all you need to know on this morning’s public finances data here. A lot going on here but overall it wasn’t good news for the Chancellor despite a record monthly surplus.
Cara Pacitti, senior economist at the Resolution Foundation, said: “January tax receipts usually boost the public finances as people rush to file their tax returns. But, despite the largest monthly surplus on record, broader tax receipts for the financial year so far were £4.6 billion lower than expected last month with worrying signs that bad news on the economy is starting to affect the public finances. “With borrowing now running £12.8 billion above the OBR’s forecast for the fiscal year to date, there are signs that weaker-than-expected growth and higher inflation and borrowing costs could leave the Chancellor in the unenviable position of needing to raise taxes or cut spending to meet her fiscal rules at the OBR’s 26 March forecast.”
🚨 New Public Sector Finances data released this morning 🚨
Despite a record surplus in January, the latest tax receipts have disappointed, leaving the Chancellor’s fiscal rules on a knife edge.
Get the Resolution Foundation response here 👉 https://buff.ly/41oDyXm
We’ll be crunching the numbers over the coming weeks to estimate just how these various economic factors might pan out and what fiscal headroom (or lack thereof) she’ll be dealing with on the 26th March…
So with only £10bn of headroom against their current balance fiscal rule the fiscal rules look on a knife edge. If the OBR’s forecast show this room has been wiped out, that will leave the Chancellor in the unenviable position of needing to raise taxes or cut spending to meet the fiscal rules.
But interest rates are still looking stubbornly higher than the early September market data the OBR used in its October 2024 forecasts.
Here, the Chancellor will be hoping that higher population forecasts and stronger wage growth will counter disappointments in GDP and increases in interest rate expectations to leave the current budget balanced by the time the OBR delivers its forecasts in late-March.
It’s worth remembering that much more important are the various other decisions the OBR makes about how the economy will develop over the medium-term – and how these play out by 2029-30 when the Government’s fiscal rules bind.
So realistically, even excluding the Self-Assessment news, today’s data isn’t brilliant for the Chancellor, illustrating the pressures that weaker then expected growth and higher than expected inflation can put on the public finances.
The cash measure of the government’s balance sheet (the central government net cash requirement) is now sitting £10.9bn above forecast, showing a similar gap from the OBR’s estimates as central government net borrowing (the accrued measure).
This is data that tracks the actual cash coming in and out of the Government’s accounts (not the accrued figures in government borrowing above that often rely on projections and estimates) making it much more reliable as a means of tracking what’s going on in real time.
They’ll also be looking at more timely cash measures of the balance sheet – where, unlike in previous months, a gap with the OBR’s forecast has also developed.
The OBR will still be compiling their forecast, so they’ll be looking at this release to understand whether they need to revise up their 2024-25 borrowing estimates, and could even revise down tax receipts in future years if we look particularly off-track from their forecasts.
So what should the Chancellor take away from this, as she nervously awaits the OBR’s final forecast in March?
And there were also higher transfers from the Treasury to the Bank of England to pay for the debt interest costs associated with quantitative easing this month (by £1.2bn) – which are, again, affected by rising interest rates since the OBR’s forecast back in October (more on this later…).
This is partly due to higher debt interest (by £0.4bn for Jan) and benefits payments (£0.8bn for Jan) that are driven by higher inflation than the OBR expected. This is likely to continue given the rise in interest rates since around the time of the Budget.
On the spending side, central government spending was £1.9bn higher than OBR forecasts for this month (and now £0.3bn higher than expected for the fiscal year so far – so broadly in line with forecast, see below).
So it looks like some weakness in tax receipts – with receipts excluding SA still running nearly £5bn below forecast for the year to date – but possibly less worrying than the headline figures suggest. This is still not good news for the Chancellor.
2) Self-Assessment taxes will reflect payments based on the previous tax year, so are not reflecting what’s currently going on in the economy. Other taxes (like PAYE income tax, NICS and VAT) look much closer to the OBR’s forecast.
1) We won’t know until we have February data whether this reflects lower tax receipts for Self-Assessment overall, or whether people just paid them later than the OBR expected!
This is mainly due to weaker Self-Assessment (by £3bn) than expected this month. Two caveats:
The main driver is tax receipts, which were £4.6bn weaker than the OBR expected this month, pushing up borrowing relative to the OBR’s forecast, and are now £7.7bn lower than the OBR forecast for the year to date.
So why was central government borrowing higher than expected this month?
But a lot of the story is in central government borrowing, which is running £8.1 billion higher than the OBR’s forecast for Apr – January, and £6.5 billion higher than forecast in this month’s data for January.
What’s driving this? Some of the action comes from borrowing by local authorities and public corporations which is £4.8bn above forecast for the year to date, partly because of the ONS taking on new data revisions that boost borrowing in previous months.
This leaves borrowing now running a huge £12.8bn higher than the OBR forecast over the first ten months of the fiscal year (Apr-Jan) – which is a significant gap given they only delivered their most recent forecasts four months ago!
And if we compare borrowing for this month against the OBR’s most recent forecast, it’s actually £5.1bn higher (less of a surplus) than expected.
