The state of the public finances

It is becoming more and more difficult to see an accurate picture of the nations finances given changes to the definitions and runs of data and the  accounting methods deployed.

Yesterday we learned that there was a £5bn surplus of revenue over expenditure in January., This was considerably   better than the OBR recent forecast. We should expect there to be a healthy surplus each January, as substantial sums of self assessment income tax, CGT and other annual taxes are paid following the filing of returns.

I found the more interesting figure was the one for the government’s cash surplus last month. That was a much healthier surplus of £21 bn for the one month. That is the excess of revenues over total bills paid by the government that month. The big discrepancy with the headline figure of just £5bn can be explained by non  cash items like the payment of £4.2bn of taxpayer  cash  to the Bank of England for its losses, where the cash sent to the Bank remains within the wider public sector, and the so called interest bill including the indexation changes on indexed government borrowings. The state does not pay these out as cash payments but they are rolled up until the maturity date of the bond which may be 20 years or more away. It will then be reborrowed, not  requiring tax revenue to pay out.

The figures suggest there is what the Treasury call headroom for some tax cuts in the  budget. The OBR will score lower tax rates  as losing the state revenue. There is an issue with this, as cuts in tax rates for taxes like Corporation Tax and higher rate Income Tax have always in the past led to more revenue  not less. Overseas experience as I highlighted yesterday is a lower rate of  business tax brings in much more revenue, encouraging so many more businesses to locate and invest in low tax jurisdictions. The headroom will be enlarged by Treasury accounting. By the year end when many expect the inflation rate to have more than halved there will be a big saving in the interest programme as the Treasury charge the  non cash item of indexation increases on inflation linked state debt to the debt interest programme. The energy subsidy programme will also produce large savings after the wind down in April.

Among the ideas the Treasury should adopt to assist growth and more capacity in our economy are cancelling the Corporation tax rise, improving the tax system for the self employed, raising the VAT threshold for small  business and suspending VAT on domestic fuel.


  1. Lifelogic
    February 22, 2023

    “Among the ideas the Treasury should adopt to assist growth and more capacity in our economy are cancelling the Corporation tax rise, improving the tax system for the self employed, raising the VAT threshold for small business and suspending VAT on domestic fuel.”

    Also ditching net zero and going for cheap, reliable, unsubsidised energy, having a bonfire of red tape, going for easy hire and fire, ditching all the woke lunacy, stop blocking the roads, stop the virtual state monopolies in education and healthcare, get real incentives to work over benefit levels, deliver a real and full Brexit, stop the war on motorists, landlords and small businesses, simplifying the tax system, cutting all taxes, cutting out the vast government waste, complexity is a tax on top of the taxes… alas all movement currently is in the opposite direction

    1. Sharon
      February 22, 2023

      LL +1

    2. Nottingham Lad Himself
      February 22, 2023

      The potholes in roads, waits for medical treatment, state of school buildings, food banks, and all the other signs of the Tories’ callous neglect of everything decent – including the management of the economy – are all evidence staring the public in the face every single day for everything that they need to know about this shower.

      John’s attacks on the ONS etc. aren’t going to send the public blind.

    3. BOF
      February 22, 2023

      All sound and sensible ideas LL. Sadly all count as conservative when there is no conservatism left. When we go to the polls the choice will be ABC. Anything But Conservative.

    4. MFD
      February 22, 2023

      Sir John Redwood for PM and Lifelogic for Chancellor – job done = Happyness!

      1. hefner
        February 22, 2023

        You are quite early for such an April’s fool joke.

    5. Bloke
      February 22, 2023

      Your list of improvements is full of what most sensible UK folk regard as welcome, and heavily overdue. It is crazy that a Govt that exists to represent our citizens’ wishes does so much against us.

    6. Cuibono
      February 22, 2023

      How much does the NHS spend on ‘Gender Identity Services”?
      In 2015 it was running at £25 million.
      Now I believe the staff are told to not call us Mr or Mrs.
      Health Sec “furious” but apparently does NOTHING!

    7. Fedupsouthener
      February 22, 2023

      Right as usual LL. Shame we have people in charge that are following a Labour policy.

    8. The Prangwizard
      February 22, 2023

      Much as most decent, practical and fair people would agree and wish for, it will never happen with the deceitfull elitist globalists we are being forced to accept.

      Authoritarian controls are being imposed and ought now to be physically resisted. The idea that debate and democratic principles are still workable must be disguarded.

      We the people have been abandoned by the elites and we must take back control by whatever means we can. We must restore freedoms to the individual, and resist socialism in all its forms.

    9. British Patriot
      February 22, 2023

      Yes, Sir John’s proposals are all very sensible – obviously! – but I would like to also raise the issue of ‘full expensing’ (ie. 100% deductible from tax) of all capital investment that increases production output. I am referring to new factories, or new machinery (within existing factories) that leads to more productivity. We have recently seen AZ move the site of their new plant from the UK to Ireland, specifically due to the higher taxes here. If the level of corporation tax were not increased as intended by the Sunak/Hunt idiots it would still be higher than that of Ireland, but the UK government will argue (wrongly in my view) that they can’t afford to reduce the tax rate. But making the cost of building and equiping the new plant fully deductible from tax might well have persuaded AZ to build it here nevertheless.

      And the key point I want to stress is that full expensing of capital expenditure that increases production does NOT actually reduce government tax revenues. This is because the increased output will lead to increased company profits (making up for the reduced corporation tax take), and also to more employment (leading to more tax revenues from personal income tax, and VAT on the purchases made, by the newly-employed, and less expenditure on benefits). I therefore believe that ‘full expensing’ of capital investment would be at least fiscally neutral overall for the government in the short-term (if not income-generating) and certainly would lead to more government revenues very quickly. Why therefore is there no lobbying from the Tory backbenchers for full expensing???

      1. Patrish Britiot
        February 22, 2023

        There is already a 130% super-deduction on qualifying capital asset (plant, machinery and equipment) investments between 01/04/2021 and 31/03/2023. 03/03/2021 ‘New temporary tax reliefs on qualifying capital asset investments’.

  2. Mark B
    February 22, 2023

    Good morning.

    It would be nice to see VAT come off our bills. VAT is a luxury tax and, given the state of our energy I can see why some will one day see that as a luxury.

    All these figures though are behind the curve and, from what data I have seen elsewhere, that curves trajectory is down.

    1. a-tracy
      February 22, 2023

      Yes, it would be interesting to see if Sunak can actually do anything without the EU telling him he can for the UK. Although VAT on domestic fuel is only 5% and the rebate probably came to much more than that for most people.

    2. IanT
      February 22, 2023

      Tax is Tax, whatever you call it and VAT is just another means to fund an ever growing State. I walked around the house yesterday, thinking about which windows I could brick up when they eventualy get around to re-introducing window taxes – after all windows are luxuries these days aren’t they?

  3. DOM
    February 22, 2023

    In this new age of collectivism eagerly embraced by all main parties we all know that without a party that seeks a smaller State then the ‘tax take’ and the ‘freedom take’ will simply step up a gear. The State’s digitalisation agenda will guarantee total control over our monies and our lives. Opting out won’t be an option

    I have always believed that access to public services will at some point be used as a tool of State compliance.

  4. Anselm
    February 22, 2023

    People are very scathing about the current government. In fact it has brought us out of Ms Truss’ tailspin, it has begun the task of fighting inflation by standing up to the middle class strikers and now, you say, it has stopped making a regular loss.
    All it needs now it to simplify the taxes and cut back the deadly bureaucracy which stifles all the professionals and – Bingo!
    (PS And end Net Zero too! Allow fracking!”)

  5. Shirley M
    February 22, 2023

    The UK is holding its own, economically. Imagine what could be achieved if we had a government that put UK interests first and stopped the waste, and stopped throwing money away on vanity projects and illegal immigrants.

  6. Sakara Gold
    February 22, 2023

    Of course government revenues improved in January. With now intractable inflation at 10%, Treasury VAT receipts have dramaticaly increased. With the BoE bank rate at only 4%, this government will continue to steal the nation’s savings – in order to fund the index-linked, non-contributory final salary pensions for the non-productive 20% of the working population that is employed in the civil service etc. Including MP’s

  7. Bloke
    February 22, 2023

    Too much of Government activity is steeped in needlessly complicated muddle.

  8. Sea_Warrior
    February 22, 2023

    Good stuff – but I suspect that Hunt, reading this over his over his corn-flakes, will be scatching his head, not understanding any of it, despite being an ‘entrepreneur’.
    P.S. Yesterday, I took a look at the implications for me, of the cuts in CGT allowances. They cause me substantial difficulties and will result in my leaving many investments untouched, in turn leading to a reduction in VAT receipts for the government. As some other commenters have observed, much of the gains in the value of personal investments come from inflation, so they’re not as real as they look.

  9. Donna
    February 22, 2023

    Sunak and Hunt won’t do anything which might upset their Controllers at The Treasury, OBR and BofE.

    They weren’t installed in order to implement Conservative policies.

    1. Ian B
      February 22, 2023

      @Donna +1

      You could reason that the way they gained their power, they were appointed by The Treasury, OBR and BofE because it was to risky to let the Conservative Party(Membership) choose via a formal ballot their own leader.

      1. Ian B
        February 22, 2023

        @Ian B
        Its amusing to see at this moment in time that the Membership in the Conservative Constituencies are permitted to re-select or otherwise their next MP, when they are excluded elsewhere from all other Conservative Party processes.

    2. Ian wragg
      February 22, 2023

      You forget UN and WEF.

  10. Narrow Shoulders
    February 22, 2023

    VAT should certainly come off fuel bills – and green levies and uncouple the price of renewable electricity from that of gas generated electricity.

    Prepare to support business gas and electricity prices from April if necessary, use any savings from consumer support for this.

    Corporation tax should come down or at least not go up.

    I would like to see benefits become taxable – it is after all income and so should be taxed over the thresholds. The state pension is taxable and many progressives and anti-boomers have started calling this a benefit so apply the same tax treatment to other benefits.

    Review benefit rises to average pay not to inflation.

    Cap public sector pay rises to include spine increments

    Unfreeze tax free thresholds. – Put 45% back to £150K.

  11. James Freeman
    February 22, 2023

    Given the small time frame, these forecasts are out by a vast amount. Given their impact on the markets and political fallout, how will you hold the OBR to account for their failings?

    What more can MPs do to make them accountable? Grovelling letters, resignations or questions from the Public Accounts Committee will not change anything.

    1. Ian B
      February 22, 2023

      @James Freeman +1

      They have been constructed to be above accountability or even responsibility to let Chancellors and Treasury Officials of the hook from doing the jobs we (The taxpayer) pays them for.
      From that you could deduce its a way of giving your Pals a job that couldn’t find employment elsewhere

  12. Berkshire Alan
    February 22, 2023

    Afraid the Government have lost the plot John, it has been going that way for years with so many failing policies, but is now an embarrassment.
    I see it is reported that the Lords have recently made comment on the Governments green boiler replacement scheme, calling it a failure, as the suggested and promised heavily subsidised 600,000 per year boiler replacements with heat pumps, has realised only 50,000 in it’s first year, and showing no signs of increasing.
    Instead of looking at the reasons why, the Government is now suggesting that it spend more £ Millions of taxpayers money on additional publicity on the scheme to try and drive it forward, instead of realising that the existing available technology and products of the green dream is simply not a priority for most people, as it does not live up to expectations as a retro fit solution, and is not cost effective !
    Clueless, absolutely bloody clueless, more money down the drain.
    Indeed so much money going down the drain, it is in danger of becoming blocked !

  13. Cuibono
    February 22, 2023

    To my mind EVERYTHING is becoming harder and harder to understand because words have been changed , definitions altered, berserk mangled meanings attributed to unlikely icons and utterances.
    I would suggest that like with ONS the changes = obfuscation!
    The money being wasted on all this anti human activity must be astounding.
    Banks and corporations need to mind their own business.
    Keep the economy straight and provide tomatoes.
    Surely not too much to ask?

    1. Ian B
      February 22, 2023

      @Cuibono +1

      The ONS has in their T&C’s a let out that even after reporting ‘actual’ figures they dont expect them to correct at any level. So what do we pay for?

      1. Cuibono
        February 22, 2023

        Agree. Good point!
        It’s fast becoming extortion for “protection” (lol) rather than payment for services rendered!

    2. Sulis
      February 23, 2023

      @ CuiBono ‘words have been changed’ . Newspeak is a dumbfounding language.

  14. Des
    February 22, 2023

    Interesting to note that should a private business do the same “changes to the definitions and runs of data and accounting methods” as government they would undoubtedly find themselves being prosecuted for fraud. But I suppose we should expect nothing else from an organisation that depends on coercion and lies to maintain itself.

    1. Ian B
      February 22, 2023

      @Des +1

      Wondering about that myself. Tax fraud in the real World, jail time, banned for life. In the same vein I have never seen anyone in business that has been +/- 5% out on predictions(just predictions) keep their job.

  15. Cuibono
    February 22, 2023

    If the govt. has filched too much ( ANY is too much!) tax from us.
    Then the money should be returned to its owners!

  16. a-tracy
    February 22, 2023

    Guido Fawkes had an interesting post on the OBR’s creditbility gap hitting £30,600,000,000 this isn’t just a rounding error or a miscalculation on self-employed tax remittance that they get every year.

    “The OBR was wrong in its most recent deficit forecast – out by a mere £30 billion (so far) for the “deficit black hole”. This chart is based on their November 2022 Economic and Fiscal Outlook (EFO). This morning in a sheepish release they admit the deficit is a mere “£22.0 billion below our forecast profile in the headline figures and £30.6 billion below profile on a like-for-like basis”.If you are making forecast errors of that magnitude on a three-month time horizon you are simply not credible.” GF blog

    The 2022 Full Year GDP growth rate was the highest in the G7 for the second year running. FTSE100 hitting 8,000 an all time high. And Hunt still wants a punishment budget for business. We don’t believe any of you anymore.

    1. Narrow Shoulders
      February 22, 2023

      The errors in forecasting are shocking but don’t be fooled by the FTSE being at an all time high. That is just money printing and inflation. The money has to go somewhere.

    2. Ian B
      February 22, 2023

      @a-tracy +1

      The OBR are no longer responsible to anyone, they are a party in opposition building and empire while agitating against anyone that questions their purpose. The OBR was created by a Conservative Chancellor because he couldn’t get to grips and manage the UK Treasury as was his remit.

      They never have to be right, they are never have to responsible for mistakes, they just build their empire and consume the taxpayers money

  17. Chris S
    February 22, 2023

    This big turn around in the finances shows there really was nothing wrong with the Liz Truss plan for growth.
    Bailey and his co-conspirators at the Treasury and OBR may just have simply got their forecasts wrong -after all, they have an appalling track record of extremely poor forecasting, but in this case I have no doubt it was part of a deliberate establishment coup.

    So, will we see a change of direction in April ? Cancelling the corporation tax rise should be a priority rather than an income tax cut, but can Sunak and Hunt bring themselves to admitting their policy was wrong ?
    I doubt it.

  18. Ian B
    February 22, 2023

    If we had a serious Government, one fully committed to the UK. We then would NOT have the likes of the Treasury in its current form, the BoE and the OBR running around without a care or responsibility playing at being the political opposition party.

    The BoE and the OBR are recent constructs to allow ministers in Government to shy away from their own responsibilities. All that has happened is Government has created Empire building monsters that contribute absolutely no value while at the same time create exorbitant costs on the Country and the Taxpayer.

    BoE and OBR, get rid, get rid today. Make the treasury work as it always used to. Above get a Government that takes charge and takes on its elected responsibilities.

  19. Original Richard
    February 22, 2023

    The recommendations of the last paragraph are simply the re-arranging of deck chairs on the Titanic that is our unilateral Net Zero.

    Our prosperity and consequently civilisation is based upon our access to cheap and abundant fossil fuel energy and the purpose of Net Zero is to destroy this access and replace with expensive and intermittent supplies of electrical energy only in order to be able to ration its use and control our lives through the smart meter.

    Note that the recently published “Mission Zero”, a review of the “Net Zero Strategy”, written by Chris Skidmore MP (Modern History) has removed from the description as to how we will obtain our energy the words “abundant, cheap British renewables” and “ensure power is always there at the flick of a switch” in the “Net Zero Strategy” (P19) and replaced with “behaviour change” in the “Mission Zero” review (P26).

    The phrase “subject to security of supply” which appears 7 times in the “Net Zero Strategy” is not used once in “Mission Zero”.

    There is no empirical evidence for catastrophic global warming, anthropological or natural, or for increasing weather extremes. Satellite data shows an average warming of just 0.13 degrees C per decade.

  20. Lynn Atkinson
    February 22, 2023

    Why suspend tax on ‘domestic fuel’ and retain it at 20% on businesses? vaT registered businesses reclaim all the VAT so pay 0%. So you have singled out the tiny family owned businesses to be the only sector in the country to pay VAT on fuel, and at a luxury tax rate!
    I just don’t understand how putting these people out of business but defending Amazon and Tesco is a Conservative stance.

    1. miami.mode
      February 22, 2023

      Far too logical for this government, Lynn.

  21. THUTCH
    February 22, 2023

    You’re logic is impeccable Sir John – ‘a lower rate of business tax brings in much more revenue, encouraging so many more businesses to locate and invest in low tax jurisdictions’.
    The problem you have is that nobody expects the Tories to win the next election and Rachel Reeves would be expected to reset corporation tax back to 25% (as well as raise a load of other taxes) in her first Budget. Therefore the payback for retaining corporation tax at 19% or, better still reducing it to 15%, would not be seen in time to save your skin. Businesses plan on the basis of years not months and the flip flopping on corporation tax over the last few years since May binned Osborne reassures no one.
    A VAT cut on fuel would be appreciated.

  22. miami.mode
    February 22, 2023

    Love the tweets today. Why does government not understand that public finances will benefit from producing our own energy and food as our host is continually saying? Total ineptitude on government’s part on the basis of virtue signalling in favour of Net Zero. Any individual or company would rapidly go bankrupt if they followed a similar policy.

    You have to laugh, though, when government exhortations of having 5 a day are thwarted by their own policies.

    1. Ian B
      February 22, 2023

      @miami.mode +1
      However, least we forget it was the Boris Johnson mantra of import, import that added to our woes. According to the BJ Government(and it is his collective responsible people still in power) Imported anything reduces home grown CO2 therefore helps in the RACE to Net Zero. The same race that all the Worlds big players have refused to take part in or place before their own economy’s

    2. Fedupsouthener
      February 22, 2023

      MM. Ha ha. Food provision? My large supermarket had near empty veg shelves for two days this week. They are expecting us to eat less meat so what are we supposed to eat on a vegan diet? The money saved on wind subsidies could help our farmers with their high energy costs.

  23. Bert Young
    February 22, 2023

    The management of our economy is under the wrong leadership with Hunt . Quite apart from his persona and previous poor record , he now has to rely on influences outside of our democracy . How markets and individuals respond depend on incentives ; this is lacking in our day to day affairs . Change will only come if there is sufficient pressure from back-bench Tories who can exert Sunak to appoint someone with the right skills – and we all know who that is .

    1. Ian B
      February 22, 2023

      @Bert Young +1
      The Conservative Party has to take back control of their Party or lose many, many elections. Boris Johnson following on from a weak Theresa May caused the Conservative Government to align itself Left of the Socialist Labour Party(and people were worried about Corbin?)

      While it may have seemed expedient at the time, in NOT permitting a proper election of party leader, the Conservative Party has created a really horrible president and a rod for its back. From now on it appears any one with a few faceless chums can anoint themselves as PM of the UK.

  24. Ian B
    February 22, 2023

    @Ian B – Supporting our local (Wokingham)producers or advertising(I have no vested interest other than liking the product) – @TwoHootsCheese?. ‘and the Government doesn’t give two-hoots’

  25. Bryan Harris
    February 22, 2023

    The state of the public finances….

    can only get worse as the chancellor is intent on relieving us of every possible penny in extended and biting taxes – He has no intention of making things better!

    Pure extrapolation tells us we cannot go on in this manner, where the people who produce are punished for having some money.

    It’s not just that economically this government have gotten it all wrong – they have an agenda that demands an increase in taxation to meet their own goals, which are totally non-survival for us.

  26. Keith from Leeds
    February 22, 2023

    Where there is no vision, the people perish! Proverbs 29.18. Written well over two thousand years ago, and perfectly sums up the situation in the UK today.
    For 20 years, the Government has spent more than its income & seems addicted to debt. Anybody knows they can’t run their private finances like that, so why do the allegedly intelligent PM & Chancellor seem unable to grasp this basic fact? Sir John, can you kindly explain to me, & your other correspondents, what the PM’s vision is for the UK because I have not got a clue! The PM’s repeated claim, now and when he was Chancellor, that he is a low-tax conservative is a joke.

  27. Richard1
    February 22, 2023

    I suggest a private members bill backed by a public campaign to mandate monthly cash flow reporting for the UK govt. The US seems to have these data readily accessible. It may be the Treasury is stuffed with people who simply don’t understand what cash flow accounting means. We clearly need much less obfuscation. Much of this is traceable back to the dreadful legacy of Gordon Brown at the treasury. Imagine what it will be like after the next election when almost no ministers or MPs in the governing party will have any business training or experience !

  28. derek
    February 22, 2023

    What is the point of abiding by the forecasts of those who continually get it wrong?
    What is wrong with this Government and/or their Civil Service Mandarins when they insist on perpetually using dubious forecasts as their economic “bible”?
    Have such predictions and forecasts become a religion in Whitehall? I pray not.

    1. Original Richard
      February 22, 2023

      derek : “What is the point of abiding by the forecasts of those who continually get it wrong?”

      Because the chosen forecaster can be directed by those who make the policies to provide the forecasts that will justify their desired policies. Policy led forecasting in other words.

      Just like policy led climate science.

  29. Ian B
    February 22, 2023

    @Bryan Harris He never was and still isn’t a Conservative, look at the NHS, now short of beds. What we now call a Chancellor removed 15,000 beds from the NHS under his watch to save money

  30. Pauline Baxter
    February 22, 2023

    Sir John, I do not fully understand all of today’s diary. However, I do understand your final paragraph. That to me is obvious common sense. So yes I fully agree.

  31. XY
    February 22, 2023

    Perhaps the most striking recently-published statistic is that the self-employed sector’s contribution to the UK economy fell by an estimated £25bn in 2022. This is being attributed to the “off-payroll” rules that were rolled out then.

    If you’re interested, the article is here (otherwise please just delete the link.):

    There are so many people now “sitting on the bench” for long periods, waiting for an outside IR35 contract (with sensible low-risk T&Cs) to come up or even taking work abroad. Some are doing other things of course, but many are (potentially) high earners who have a choice each tax year of doing more work and paying most of the proceeds to the government – then seeing them waste it – or of sitting it out and waiting for the right work under the right conditions to come along. Or even just deciding they have enough money and taking 6 months off.

    Tax rates have been discussed here before, and how they can be reduced from a high level yet lead to an increase in overall tax take, but this problem is rooted not only in *rates*, but in the government inventing new taxes (e.g. dividend tax), reducing allowances (again, dividend tax), freezing allowances (income tax) and applying taxes to new people (IR35 itself did that in applying employment taxes to self-employed people). It all hurts the economy, because some people can afford to change their behaviour… by not working for significant periods of time – and therefore, not paying tax.

    Brainless, blinkered government, to be frank.

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