Polling shows most of the public want the threshold to be raised to take more people out of paying (Image: Getty)
Jeremy Hunt has a surprise £20 billion war chest for pre-election giveaways after a major fall in borrowing.
Tories are clamouring for tax cuts in the March budget to help them recover from poor poll ratings ahead of the general election.
Economists expect the Chancellor will “splash” the cash rather than increase spending.
Ruth Gregory, deputy chief economist at Capital Economics, said better than expected public finance figures will give Mr Hunt a “bit more wiggle room for a big pre-election splash”.
Borrowing was £11 billion lower than the City expected at £7.8 billion.
It was also £8.4 billion less than a year earlier and the lowest December borrowing figure since 2019.
Along with around £10 billion in changes to the value of student loans, it means the Chancellor has about £20 billion of “headroom”, Ms Gregory added.
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Conservative MP Sir John Redwood said the figures showed there are “big savings coming up”.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “In the budget on March 6, Hunt almost certainly will cut personal taxes in a bid to improve his party’s chances in the general election.”
But economists warned the figures do not show that the Government’s wallet is bulging with cash.
Total net debt was £2.69 trillion at the end of the year, which is around 97.7% of the size of the economy, or gross domestic product (GDP).
It means that the debt to GDP ratio is 1.9% points above last December and still at levels not seen since the early 1960s.
Chief Secretary to the Treasury Laura Trott said: “Protecting millions of lives and livelihoods during Putin’s energy shock and a once-in-a-century pandemic has created economic challenges.
“However, it is right that we pay back these debts so future generations are not left to pick up the tab.
“Because of this Government’s decisive action, the economy is now beginning to turn a corner.
“Inflation has more than halved. Debt is on track to fall as a share of the economy. And we have been able to afford tax cuts for 27 million working people, and an £11 billion tax cut to drive business investment.”
A Treasury source said all taxes are kept under review.
Tories called on Mr Hunt to use the extra financial power to scrap the hated inheritance tax after another record-busting year in payments.
Death duties on estates have totalled £5.7 billion since the start of the financial year, up by eight per cent on the same period in 2022.
The Chancellor was told the tax is hitting middle class families on modest incomes and must be abolished in his March budget.
Sir Jacob-Rees Mogg said: “Inheritance tax is an economically inefficient tax which even after this record rise raises relatively little. It should be abolished.”
Taxes kick in on estates worth more than £325,000, which impacts more and more people as house prices rise.
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The 40% tax is imposed on everything above the threshold.
But estates of spouses and civil partners worth up £1 million can be passed on without any inheritance tax liability.
Senior Tory David Jones said: “It should be abolished. The threshold has not increased since George Osborne was chancellor.
“It’s dragged a lot more people of modest means into the trap.
“People really hate it. It’s an invidious tax and it ought to go.
“Millionaires can afford financial advisers and accounts to get them out of paying it. It is the moderately off middle classes who are hit by it.
“The time has come for it to be abolished.”
Experts expect the total for this financial year will reach around £7.6 billion, significantly higher than official forecasts of £7.2 billion and last year’s all-time high of £7.1 billion.
Polling shows most of the public want the threshold to be raised to take more people out of paying it.
Stephen Lowe, from retirement specialist Just Group, said: “Freezing the thresholds has dragged more households into paying Inheritance Tax especially when combined with the property price rises of the last five years or so.”
Shaun Moore, tax expert at Quilter, said: “Abolition of IHT would certainly split voters and it’s likely that Labour would fairly rapidly vow to bring it back into force if they were to get in.
“This could therefore become a serious area of contention over the following few months if the Conservative party is minded to push ahead with abolition. Regardless of which political party gets into government, simplification of IHT is certainly overdue.”
Separate figures from the Office for National Statistics showed public sector bodies borrowed £7.8 billion in December, more than £6 billion less than economists had expected.
It was also £8.4 billion less than a year earlier and the lowest December borrowing figure since 2019.
A government spokesperson said: “More than 93% of estates are forecast to have zero inheritance tax liability in the coming years – however, the tax raises more than £7 billion a year to help fund public services millions of us rely on daily.
“Estates of surviving spouses and civil partners can pass on up to £1 million without an inheritance tax liability – significantly more than the average UK home of £288,000.”
