Government borrowing in December exceeded expectations, reaching a four-year high, adding significant strain on the UK's finances. Borrowing, totaling £17.8 billion last month, was £10.1 billion higher than in December 2023. Despite increased tax receipts, spending on public services, benefits, and debt interest surged, partially due to National Insurance cuts made by the previous administration.
The government has emphasized economic growth to enhance living standards but faces concerns about the UK economy's health, fueling speculation that spending on public services may be reduced. The £17.8 billion borrowed in December far surpassed the Office for Budget Responsibility's forecast of £14.6 billion. Debt interest charged by the government hit £8.3 billion, the third-highest December repayment since records began in 1997.
During the World Economic Forum in Davos, Switzerland, Chancellor Reeves downplayed the recent market turbulence's impact on meeting self-imposed borrowing rules. Reeves seeks to attract investment in the UK from major international businesses and financiers at the event.
While borrowing costs have slightly decreased, the sluggish economic growth and high interest rates pose challenges. Analysts anticipate tax increases and spending cuts by March to align with fiscal rules. The forthcoming tax rises, including National Insurance rate hikes and lower employer thresholds, could strain businesses, impacting economic growth.
The Treasury is deliberating on infrastructure projects like a third Heathrow runway and a second Gatwick runway but with delayed timelines. Government sources attributed the Competition and Markets Authority chair's resignation to an unsatisfactory proposal on driving economic growth.
Chief Secretary to the Treasury, Darren Jones, emphasized the immutability of government borrowing rules for economic stability, stressing the need to eliminate inefficiencies and ensure prudent spending. December's borrowing level, the third-highest on record since 1993, included a one-off £1.7 billion payment to repurchase military accommodation from the private sector.
With the financial year well underway, the gap between government spending and earnings exceeds official forecasts by £4 billion. January's borrowing figures typically differ from December's due to self-assessment tax returns, affecting government revenue.