Fri, 21 Feb 2025

Fri, 21 Feb 2025 Government finances in surplus but pressure builds on Reeves

Chancellor faces a rising challenge to keep her tax and spending plans on track after missing forecasts.

* The UK government's finances missed official forecasts, with a surplus of £15.4bn in January, lower than the predicted £20.5bn.
* This has increased pressure on Chancellor Rachel Reeves to cut public spending or raise taxes further to meet her self-imposed fiscal rules.
* The Office for Budget Responsibility (OBR) will release its latest outlook for the UK economy and public finances next month, which will detail what headroom the chancellor has against her financial rules.
* Recent economic data "could leave the chancellor in an unenviable position of needing to raise taxes or cut spending to meet her fiscal rules", said Cara Pacitti, senior economist at the Resolution Foundation think tank.
* The government reiterated that its fiscal rules are "non-negotiable", but experts warn that there may be limited options for the chancellor if she wants to avoid breaking her rules.
* Government departments will submit line-by-line breakdowns of their spending in the coming days, along with suggestions for where savings could be made.
* The Institute for Fiscal Studies (IFS) cautioned that government revenue figures from a single month are likely to be revised and do not meaningfully affect the overall fiscal outlook.
* However, the IFS added that the figures show much more borrowing in January than was planned last March, which may lead to further tax rises or spending cuts.
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