The Times - UK (2022-02-23)

38 Wednesday February 23 2022 | the times

Business

Tax returns boosted public sector
finances last month but inflation
pushed up the cost of interest payments
on government debt to almost four
times its level last year.
The government recorded a surplus
of £2.9 billion in January thanks to an
uplift from self-assessment receipts,
figures from the Office for National
Statistics (ONS) show.
Economists had predicted an even
higher surplus of £3.5 billion, but soar-
ing interest payments and spending on
healthcare increased government costs
despite a stronger economic recovery
than expected after the onset of the
Omicron coronavirus variant.
Borrowing between April and Janu-
ary reached £139 billion, below the
Office for Budget Responsibility
(OBR)’s forecast of £156 billion. Michal
Stelmach, senior economist at KPMG,

Public finances in surplus despite

inflation pushing up cost of debt

Arthi Nachiappan
Economics Correspondent

said he expected that next month the

OBR would revise down its projection

for borrowing for the 2021-22 financial

year by about £20 billion.

However, he added: “That windfall

will be spent almost entirely next year

on the government’s £9 billion package

of support to help households with

rising energy bills.”

About 20 per cent of taxpayers did

not submit their self-assessment tax

return on time this year because of the

one month extension granted by the

Treasury, which allows anyone who

files online by February 28 to avoid a

penalty fine.

This means that public sector finan-

ces in February and March will be flat-

tered by higher levels of tax receipts

than is usual for the time of year.

Interest payments on government

debt rose to £6.1 billion in January, a rise

of 287 per cent on the £1.6 billion

recorded in January last year. The

increase is largely because of a rise in

the retail prices index, which deter-

mines payouts on index-linked gilts.

Inflation in consumer prices, which

was at 0.7 per cent in January 2021, has

reached 5.5 per cent, according to the

latest ONS figures published last week.

Samuel Tombs, chief UK economist

at the Pantheon Macroeconomics

consultancy, predicts that interest

payments in the 2022-23 financial year

will exceed the OBR’s projections by

£25 billion.

“The rising cost of making interest

payments on the existing stock of debt

explains why the chancellor’s package

of measures to help with energy bills,

£4.5 billion in non-repayable grants and

£5.5 billion in energy bill loans, was so

modest, and underscores that the

forthcoming fiscal squeeze is not about

to be relaxed,” he said.

Inflation, which is set to rise to a peak

of more than 7 per cent in April, will

continue to put pressure on public

sector finances as rising debt interest

costs lead to higher levels of borrowing

in the coming months.

The government spent £76.3 billion

in January, far above the OBR’s forecast

of £67.7 billion, but downward revisions

to previous data pushed down the

cumulative borrowing for the present

financial year.

Bethany Beckett, UK economist at

the Capital Economics consultancy,

said: “Based on the data for the fiscal

year so far, cumulative borrowing in

2021-22 looks set to be £17.7 billion

lower than the OBR’s forecast of

£183 billion, so around £165 billion.

“But we expect the combination of

higher inflation and interest rates to

keep pushing borrowing above the

OBR’s forecast in the coming months,

resulting in cumulative borrowing of

£175 billion to £180 billion.

“That will be unwelcome news for

the chancellor, who still has two more

public finances data releases to go

before the spring forecast on March 23.”

Factory output growth picked up in the
three months to February, but the
balance of manufacturers expecting
price rises in the next three months rose
to its highest since December 1976.
The latest monthly CBI Industrial
Trends Survey, based on responses
from 224 manufacturing companies,
found that the balance of businesses
who expect price rises in the next three
months was a positive 77 per cent in

Fears of factory price growth at highest since 70s

February, against 78 per cent in Decem-

ber 46 years ago.

Growth in output volumes accelerat-

ed in the quarter to February compared

with the same period one month earlier

at 26 per cent from 14 per cent. Output

increased in 13 out of 17 sectors, with

growth driven by the chemicals and

food, drink and tobacco sub-sectors.

Total order books were strong in

February with a 20 per cent positive

reading from 24 per cent in January,

while export order books improved

slightly and remained above their long-

term average.

Anna Leach, deputy chief economist

at the employers’ organisation, said:

“Manufacturers will be buoyed by

strong order books and output growth,

but amid ongoing cost pressures,

almost four in five firms expect to in-

crease prices in the next three months.

“With high inflation dampening

growth prospects in the wider

economy, the government must use the

spring statement to help get businesses

investing more, supporting higher

growth, productivity and wages.

“That should start with a permanent

investment deduction as a successor to

the super deduction, which ends next

year,” she added.

Tom Crotty, chairman of the body’s

manufacturing council, said: “With

rising prices and inadequate stocks of

finished goods, the cost-of-living

crunch continues to bite across the sec-

tor, alongside continuing global energy

and supply chain challenges.”

Times Business Reporter

Employers

more willing

to hire staff

Times Business Reporter

Business confidence has started to

recover after the Omicron strain,

according to the Recruitment & Em-

ployment Confederation.

The latest JobsOutlook survey from

the confederation covering November

to January found confidence in the eco-

nomy rose by six percentage points

from the previous rolling quarter, but

still at a net -5. In January, employers’

confidence levels turned positive at 1,

suggesting better expectations for

growth this year, despite the threat of

rising inflation and labour shortages.

The survey found that employers’

confidence in making hiring and in-

vestment decisions rose to net +17 in the

three months to January. This was eight

points higher than the previous rolling

quarter. Hiring intentions in the short-

term increased by four points to net

+24, and medium-term demand rose by

five points to net +24.

Neil Carberry, chief executive of the

trade body, said: “With the worst of the

Omicron wave behind us, employers

feel a little more optimistic about the

state of the economy. And the majority

are desperate to hire, and not just per-

manent staff. Temporary workers are in

high demand as businesses try to kick-

start this year’s growth.

“But there is a huge participation gap

in the labour market right now. Firms

must make workforce planning their

number one priority. That means

putting serious effort into attracting

candidates from a wider variety of

backgrounds, training workers to fill

the gaps, and retaining their best talent.

Hybrid and remote working will be one

part of that.”

ALAMY

R

esidential property

transactions fell by

a fifth in January

compared with the

previous month amid

shortages in homes for

sale, according to

official figures,

(Arthi Nachiappan

writes).

More than 85,000

properties changed

hands last month, the

latest figures from the

Treasury show. There

were 22 per cent fewer

transactions than in

December and 13 per

cent fewer than in

January 2021.

However, the figures

for the start of the year

were 7 per cent higher

than the January

average for the three

years before the

pandemic, which was

just under 80,000. The

supply of homes for sale

is thought to be about

10 per cent below the

average across 2017 to

2019, according to

TwentyCi, the customer

intelligence agency.

Lawrence Bowles,

director of research at

Savills, the estate agent,

said that the easing

of activity was

unsurprising. “Last

year’s stamp duty

holiday is now a distant

memory, and a

slowdown in the number

of homes listed for sale

means it’s looking more

and more like a seller’s

market,” he added.

The stamp duty

holiday, which

encouraged buyers by

offering a tax break of

up to £15,000 on their

purchase, ended on

September 30 last year.

Bowles said that the

lack of stock of homes

has pushed up the prices

at which sales are

agreed. “That imbalance

in supply and demand

will continue to put

upward pressure on

values, though rising

mortgage rates will

impact affordability and

ultimately slow potential

growth. We’re

predicting average UK

house prices will rise 3.5

per cent this year and

13.1 per cent by 2026.”

House prices ended

last year at a record high

with annual price

growth of above 10 per

cent, its strongest in 15

years. The average price

of a home hit £254,822,

up by almost £24,000

compared with the

previous year, according

to Nationwide. In cash

terms it is the largest

yearly rise on record.

Property transactions

fall as stock dwindles

House prices have been

driven up by a shortage of

properties for sale. Supply

is about 10 per cent below

the average from 2017-19