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January surplus at 17-year high in pre-Budget boost for Hammond

The Government recorded its highest January surplus for 17 years, giving the Chancellor a boost ahead of the Spring Budget.

The Office for National Statistics (ONS) said public sector net borrowing excluding state-owned banks saw its surplus grow by £300 million to £9.4 billion last month, compared to January 2016.

However, it fell short of economists' expectations, who had pencilled in a more generous figure of £14 billion.

The UK's public finances record a surplus in January as the Government rakes in tax receipts from self-assessment, capital gains tax and corporation tax.

It came as Government borrowing, excluding banks, for the financial year to date - April to January - fell £13.6 billion to £49.3 billion, in contrast to the same 10 months in 2015.

The ONS said it was the lowest year-to-date borrowing amount since January 2008.

A spokesman for the Treasury said: "We remain committed to returning the public finances to balance and building on our progress in reducing the deficit from 10% to 4% of GDP over the last six years.

"Next month the Chancellor will deliver his Spring Budget based on updated forecasts from the OBR."

Chancellor Philip Hammond has ditched his predecessor's target of balancing the books by 2020, vowing instead to put the public finances back in the black ''as early as possible'' in the next Parliament as part of a new draft Charter for Budget Responsibility outlined in the Autumn Statement.

The Office for Budget Responsibility (OBR) - the Government's fiscal referee - said in November that it expects Mr Hammond to overshoot previous borrowing targets for this year, revising its outlook from £55.5 billion to £68.2 billion for 2016/17.

However, economic think tank EY ITEM Club said on Monday that it expects Mr Hammond to receive a Budget boost, as the OBR unveils a brighter outlook on economic growth and the public finances.

Britain's fiscal watchdog will trim back forecasts for net borrowing by £3 billion to £65 billion for 2016/2017, while changing predictions for the UK economy to 1.7% from 1.4% for this year, according to the organisation.

It said the OBR will amend its outlook after seeing a bigger haul from tax receipts and a stronger performance from UK gross domestic product (GDP) in the fourth quarter of 2016.

On debt, the ONS said public sector net debt excluding state-owned banks climbed by £91.7 billion to £1,682.8 billion last month, equivalent to 85.3% of gross domestic product (GDP).

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the Government was on course to undershoot the OBR's predictions, but expects the UK's finances to "deteriorate" in the final two months of the financial year.

"Borrowing remains on track to undershoot the OBR's Autumn Statement forecast, despite January's smaller-than-expected surplus.

"The ONS has decided this month to shift to recording corporation tax receipts when the economic activity that generated them occurred, rather than when they were received by the Exchequer.

"Partly as a result, borrowing in the first nine months of the fiscal year was revised down by nearly £4 billion."

Government coffers were bolstered by self-assessed income tax and capital gains tax, which rose by £2 billion to £19.8 billion in January, compared with the same month last year.

The statistics agency said the figure was the highest amount since records began in April 1999.

John Hawksworth, PwC chief economist, said: "The ONS handed the Chancellor a £5 billion pre-Budget windfall today by revising down its earlier estimates of public borrowing in the period from April to December 2016 by around £5 billion.

"This was largely due to a £4 billion boost to estimated corporation tax receipts, partly due to a methodological shift from cash to accruals accounting, as well as a cut in estimated EU budget contributions over this period.

"Together with a £9.4 billion budget surplus in January, which was slightly higher than last year although below market expectations, the budget deficit for 2016/17 as a whole now looks set to come in below £60 billion.

"This would be well below the OBR's estimate of around £68 billion in November, although probably still higher than the pre-referendum estimate of £55.5 billion at the time of the March 2016 Budget."

Mr Hammond will deliver his spring Budget on Wednesday March 8.

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