UK budget surplus at four-year high as revenues exceed target

London: Britain posted the biggest budget surplus in four years in January, putting Chancellor of the Exchequer George Osborne on course to undershoot his full-year deficit target.

Revenue exceeded spending by £7.75 billion ($12.3 billion), compared with a surplus of £5.2 billion a year earlier, the Office for National Statistics said yesterday in London.

The median of 10 forecasts in a Bloomberg News survey was £6.3 billion. January is the biggest tax-collection month of the year.

Osborne is refusing to bow to pressure from opposition politicians to relax his fiscal squeeze to promote growth when he presents his budget next month.

Moody's Investors Service said last week while the UK's Aaa rating was at risk from the crisis in Europe, the government's commitment to deficit reduction supported the top grade.

"If the euro area doesn't blow up and propel the world back into recession the probability is quite high that the government will stick to its fiscal plans," said Ross Walker, an economist at Royal Bank of Scotland Group in London.

"It makes sense for them to maintain the Aaa rating and market confidence on the debt."

Greek deal

Greece won a second bailout overnight after European governments wrung concessions from private investors as part of a debt swap and tapped into European Central Bank profits to prevent the nation defaulting.

Bondholders' response to the swap and parliamentary approvals in some European countries loom as risks to the deal.

In the UK, receipts rose 2.8 per cent in January from a year earlier, while spending increased three per cent. The government receives a fifth of all taxes on company profits and gets final payments of income tax for the previous fiscal year.

In the first 10 months of the fiscal year, the deficit narrowed to £93.5 billion from £109.1 billion a year earlier. Government revenue increased 4.7 per cent and spending grew 1.6 per cent. It raises the possibility that borrowing in the fiscal year through March will come in below the £127 billion forecast by the Office for Budget Responsibility in November, giving Osborne limited leeway to offer growth-inducing tax incentives in the budget, said Chris Williamson, chief economist at Markit.

Credible plan

"Our credible deficit plan is working and bringing government borrowing down: so far this year it is £16 billion lower than in the same period last year," the Treasury said in an e-mailed statement yesterday.

"It is the deficit plan, and its successful implementation, that is keeping interest rates at record lows for families and businesses and helping to support the recovery."

The pound was trading at $1.5816 in mid-morning, down 0.2 per cent on the day. The benchmark 10-year government bond yield was little changed at 2.22 per cent.

The surplus including government support for banks was £10.7 billion. National debt was £989 billion in January, falling below the £1 trillion mark reached in December. As a percentage of gross domestic product, the debt was 63 per cent.

There was a public-sector cash surplus of £16.8 billion, compared with economists' forecast for £24.7 billion.

The statistics office said the sale of Northern Rock to Virgin Money moved the bank outside the public sector on January 1 and added £653 million to Britain's national debt.

This is because a capital transfer of £1.4 billion to Northern Rock in 2009 was treated as a "temporary effect" and not included in national debt until the sale to Virgin for £747 million.

The statistics office said the sale includes some deferred payments that over time will reduce the impact on the national debt.

Calls to lower sales tax

The government is aiming to rid Britain of a budget deficit equal to 9 per cent of gross domestic product by 2017.

Its £147 billion austerity programme will cost more than 700,000 government jobs, and critics say it is undermining growth.

Ed Balls, who speaks for the opposition Labour Party on economic matters, on Sunday called for officials to lower sales tax to aid the economy.

The Institute for Fiscal Studies said February 1 lower borrowing could give Osborne room to safely implement a "significant" fiscal stimulus to support growth.