Welcome to HL's reimagined News, Insights and Research experience. Find out more

Despite January’s surplus, the Chancellor will "probably have limited headroom" for tax cuts

Article originally published by The Guardian. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Jeremy Hunt will probably only have “limited headroom” in next month’s budget, despite the record surplus racked up in January, predicts Ruth Gregory, deputy chief UK economist at Capital Economics.

Gregory estimates Hunt will only have £15bn to play with, which won’t be enough for a “big pre-election splash”, despite January’s record surplus reported this morning.

She tells clients this morning:

"We think that probable downgrades to the OBR’s GDP and inflation projections will mean the Chancellor has just £15bn (0.5% of GDP) to play with whilst still meeting his fiscal rules.

We suspect he will unveil a smaller net giveaway than November’s £21bn of about £10bn (0.4% of GDP) and that he will have to resort to a further squeeze on public spending to meet his fiscal rules.

But resolving the problem of how to deliver such tight spending plans will be a problem left for after the election."

There were reports last week that Hunt was considering billions of pounds of new spending cuts to fund pre-election tax cuts.

That would be on top of the “implausible austerity” already pencilled in for after the election under Hunt’s plans.

Polling last weekend, though, suggested such deep cuts could be counter-productive for the Conservatives, given public concerns over under-funded public services.

This article was written by Graeme Wearden from The Guardian and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.