Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, commented on today's public sector finance data
The latest data on the public finances show that, between April and December, the UK government borrowed nearly 13 billion less than the OBR had forecast. This provides the fiscal room' to ditch the hike in National Insurance Contributions (NICs) planned for April, which would have raised about 12 billion.
The economy has recovered more quickly than expected, creating a growth dividend' for the Treasury. Higher inflation is increasing the amount that the government has to spend on interest payments on inflation index-linked debt. However, the accompanying rise in nominal incomes is also increasing tax revenues and reducing the burden of debt as a share of GDP.
The government may still need to find more money later to fund a long-term increase in spending on health and social care. But the NICs hike in 2022-23 was intended to help with the one-off costs of fixing the backlog of NHS work caused by the pandemic.
It is therefore entirely credible to use the growth dividend to pay these costs, rather than adding even more to the tax burden by raising NICs now.
Notes editors
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