(Bloomberg) -- Britain delivered the biggest budget surplus on record in January, a boost for Chancellor Jeremy Hunt two weeks before he is due to announce what could be the last fiscal statement before a general election. 

Tax revenue exceeded spending by £16.7 billion ($21.1 billion), more than double the surplus a year earlier, the Office for National Statistics said Wednesday. It left the budget deficit in the first 10 months of the fiscal year at £96.6 billion — £9.2 billion less than the Office for Budget Responsibility forecast.

The undershoot raises the prospect of tax cuts in the March 6 budget as Hunt comes under pressure from grassroots Conservatives to rescue their political fortunes ahead of a general election expected later this year. The Tories, in power since 2010, are trailing the Labour opposition in opinion polls by around 20 percentage points. 

However, self-imposed fiscal rules requiring the debt burden to be falling in five years mean those demanding major giveaways could be disappointed.

Hunt is thought to have been told by the OBR that he has no more headroom than estimated in November, at around £13 billion. A third forecast as part of the pre-budget process was delivered to the chancellor this week. Hunt is understood to be considering cutting already tight public spending plans to carve out extra headroom.

Chief Secretary to the Treasury Laura Trott played down the prospect of a tax-cutting bonanza: “We provided hundreds of billions to pay wages, support business and protect lives during Covid, and to pay half of people’s energy bills after Putin’s invasion of Ukraine,” she said in a statement. “But we can’t leave future generations to pick up the tab, which is why we have taken tough decisions to help reduce borrowing versus what the OBR expected in March.” 

Michal Stelmach, senior economist at KPMG, said the government is on track to borrow about £10 billion less this financial year than the £123.9 billion forecast by the OBR at the Autumn Statement in November. Hunt could see his headroom rise sufficiently to knock 2p off income tax and scrap a planned rise in fuel duty, Stelmach said.

The in-year fiscal position was boosted by revisions that reduced borrowing between April and December by £5.8 billion. This was entirely due an upward revisions to income and tax and national insurance receipts. Cumulative borrowing is now lower than a year earlier for the first time in this fiscal year.

Strong VAT, personal and corporation tax receipts lifted government income in the 10 months while spending was helped by lower debt-interest costs and the withdrawal of energy support schemes that added tens of billions of pounds to spending last winter. 

Debt interest is lower due to a decline in the retail prices index of inflation against which a quarter of the government debt is priced. Debt interest was the lowest for a January since 2021 at £4.4 billion, which was £2.7 billion less than the OBR forecast.

The national debt hit £2.65 trillion and remains at levels last seen in the 1960s at 96.5% of GDP, the ONS said.

January is the biggest tax month of the year as payments relating to self-assessed liabilities incurred during the previous fiscal year pour in ahead of an end-month deadline. Self-assessed income and capital gains tax receipts were £33 billion last month – £1.8 billion less than last year.

The Treasury transferred another £11.2 billion of cash to the Bank of England to cover losses on its quantitative easing program, taking the total payments to £49.4 billion since October 2022.

The BOE had transferred £123.9 billion to the Treasury between 2009 and 2022, but the recent reversal of flows now leaves the net gain from the program at £74.5 billion. The BOE expects the QE program to be net loss-making within a few years.

--With assistance from Joe Mayes, Mark Evans and Joel Rinneby.

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