Chancellor Jeremy Hunt unmoved by £7.5bn borrowing boost

Chancellor Jeremy Hunt has urged the government to ‘maintain discipline’ despite borrowings for the first quarter of the financial year coming in £7.5bn lower than expected.

Hunt faces calls for tax cuts ahead of the election and economists at Investec said the task would be ‘difficult, but not impossible’ after figures from the Office for National Statistics showed that borrowing – the gap between the government’s tax revenue and spending – fell to £18.5bn in June. This was £400m lower than a year ago, but still the third highest level of the month since records began in 1993.

Economists had expected an increase to £22 billion. For the April-June quarter, loans were £54.4bn, £12.2bn more than a year ago, but £7.5bn less than forecast by the Office for Budget Responsibility (OBR) in March.

But the chancellor, boosted this week as inflation fell more than expected, suggested he was unlikely to loosen the purse strings.

Hunt (pictured) said: ‘Now more than ever we need to maintain discipline in public finances.

“We are at a critical juncture and must avoid reckless spending. As this week’s fall in inflation showed, we will begin to see results if we stick to our plan to cut inflation in half, grow the economy and reduce debt.”

The Treasury was boosted by a £2 billion increase in income tax receipts and a £1.6 billion increase in corporate tax receipts.

That highlights the increasing burden on households and businesses as the government gets more out of it through frozen tax brackets and higher rates.

The higher tax burden offset the impact of rising benefits fueled by inflation and energy support schemes.

The figures also pointed to a sharp fall in the government’s payments on its debt interest, with the June figure at £12.5bn, which is £7.5bn less than the record figure for the same period last year.

A notable contributor came from estate taxes, which hit a record high of £795 million last month as rising house prices, booming investment markets and frozen tax brackets pushed more estates into the net. For the April to June period, it totaled £2 billion.

The numbers came hours after the Tories suffered two midterm elections defeats.

Investec economist Philip Shaw said this “demonstrated the political necessity for the government to succeed in cutting taxes.”

He added that if a recession comes, cutting taxes ahead of the election will be “difficult, but not impossible.”

Ruth Gregory, an economist at Capital Economics, said that while the Chancellor would “probably have a little more wiggle room” for giveaways, any package should be “modestly or swiftly rolled back” as the full impact of higher interest rates and weak economic growth began to be felt.