The chancellor has "wiggle room" to help tackle the rising cost of living, an influential economist has said.
Sir Charlie Bean told the BBC that Rishi Sunak may have as much as £50bn "to play with", ahead of the Spring Statement on Wednesday.
New official data also show that the government is borrowing less than expected so far this year.
It comes as pressure mounts on Chancellor Rishi Sunak to take action to tackle soaring costs.
Calls from charities and politicians have been growing for the chancellor to address the increasing pressure on household budgets at the Spring Statement on Wednesday, where he will deliver an update on how the economy is faring as well as some policy updates.
But Mr Sunak has said the priority has to be shrinking the amount that the government has to borrow to make up the shortfall between what it borrows and what it earns in receipts.
The Office for National Statistics (ONS) said that government borrowing in the financial year to February was £138.4bn.
It marks the third-highest since records began in 1993, although it is still £21.2bn less than forecast by the Office for Budget Responsibility (OBR).
Sir Charlie Bean, who was responsible for economic forecasts at the government's independent forecaster, the Office for Budget Responsibility until December, told the BBC's Today programme that rising inflation and improved tax receipts would mean that the chancellor might have more "wiggle room" at Wednesday's spring statement.
According to the new figures, the government collected £53.7bn in taxes this February, up by more than £4bn in comparison with last year.
He suggested that could mean that Mr Sunak could even have between £25 and £50bn "to play with", depending on how the independent forecaster the Office for Budget Responsibility thinks the cost of living will change over the next few years.
Where does the government borrow billions from?
The amount the government borrows to make up the difference between what it spends and what it collects is known as "public sector net borrowing".
It will borrow because it spends more than it gets in income, which mainly comes in from taxes like VAT or income tax.
It does this by selling bonds - a promise to make payments to whoever holds it on certain dates - essentially an interest-paying "IOU".
Surging food prices, energy bills and fuel prices have pushed costs up for households, but rising inflation also means the government is paying more in interest payments on its debt.
Rising inflation led to government interest payments hitting a fresh record in February, the ONS figures also show.
Interest payments reached £8.2bn last month, the highest amount for a February since records for them began in April 1997 and up £1bn on last year.
The payments are pegged to the Retail Prices Index (RPI) measure of inflation - which reached 7.8% in January.
The government has borrowed billions of pounds to spend on measures designed to limit the impact of the Covid pandemic, such as the furlough scheme, over the last couple of years.
New data showed that public sector debt, excluding public sector banks, remains at a level not seen since the early 1960s.
In response to the figures, Mr Sunak said: "The ongoing uncertainty caused by global shocks means it's more important than ever to take a responsible approach to the public finances.
"With inflation and interest rates still on the rise, it's crucial that we don't allow debt to spiral and burden future generations with further debt."
'Better shape than expected'
James Smith, research director at the Resolution Foundation think-tank, said: "The chancellor will approach the UK's latest crisis - the tightest income squeeze in generations, exacerbated by the Russian invasion of Ukraine - with the public finances in better shape than expected."
In February, the UK government borrowed about £5bn more than expected, with those higher debt interest costs off-setting the boost in tax income.
Nevertheless, Mr Smith called on the chancellor to increase tax revenues to provide emergency income support to families through the cost of living crisis.
Charities such as Resolution Foundation and Save the Children UK have urged the chancellor to consider measures such as increasing benefit payments by at least 7% to try to match the rate at which prices are rising, as well as expanding eligibility for the Warm Home Discount for energy bills.
But Hoa Duong, an economist at consultancy firm PwC, suggested the growing pressures caused by the conflict in Ukraine and easing household living costs could exacerbate the deficit - the amount by which the government's income falls short of what it spends.
"In the Spring Statement we expect the chancellor to continue his cautious approach and prioritise balancing the books. Therefore any financial support, including reducing pressure on households' cost of living, is likely to be limited," she said.