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UK borrows less than expected in December as COVID impact eases

·Business Reporter, Yahoo Finance UK
·4-min read
UK borrowing
The UK government borrowed £16.8bn in December. Photo: Peter Nicholls/Reuters

The UK government borrowed £16.8bn ($22.7bn) in December while the new Omicron variant swept across the country, a rise from £16.6bn in November, but less than expected.

According to the Office for National Statistics (ONS), this was the fourth-highest December borrowing since the monthly record began in 1993.

However, it was £7.6bn less than in December 2020, when the county entered its second national lockdown, thanks to improved tax revenues and savings in public spending.

A Reuters poll of economists had expected borrowing to come in at £18.5bn during the month.

December borrowing was £ less than December 2020. Chart: ONS
December borrowing was £ less than December 2020. Chart: ONS

Public sector net borrowing excluding public sector banks, was estimated to have been £146.8bn in the financial year-to-December 2021; this was the second-highest financial year-to-December borrowing, and £129.3bn less than in the same period the previous year.

This included a £6bn downward revision to borrowing up until November, the ONS said, while corporate tax revenues hit an all-time high of £5.5bn.

Central government receipts were £68.5bn last month, the data showed, up 10% compared to December 2020, as the economy recovered from the health crisis. Central government bodies spent £86.7bn, down £1bn due to savings from the job retention scheme that ended in October.

Provisional estimates indicate that in the financial year ending 2021 (April 2020 to March 2021), the public sector borrowed £321.8bn, more than double the previous record of £157.8bn in FYE 2010, during the economic downturn following the global financial crisis.

This was equivalent to 15% of UK gross domestic product (GDP), the highest such ratio since the end of World War Two, when it was 15.2% in 1946.

Interest payments on central government debt also hit £8.1bn last month, a December record and £5.4bn more than in December 2020. This was due to the jump in the RPI inflation rate.

Watch: What is inflation and why is it important?

Chancellor Rishi Sunak is currently facing mounting pressure to relax planned tax changes in April. On Tuesday he highlighted the impact of rising debt repayments.

"We are supporting the British people as we recover from the pandemic through our Plan for Jobs and business grants, loans and tax reliefs, he said.

"Risks to the public finances, including from inflation, make it even more important that we avoid burdening future generations with high debt repayments. Our fiscal rules mean we will reduce our debt burden while continuing to invest in the future of the UK."

It comes as a total of more than 50 schemes have been announced by the UK government, and the devolved administrations, to support individuals and businesses during the coronavirus pandemic.

Lower receipts combined with the additional cost of these schemes have resulted in record borrowing.

Read more: Majority of Brits won’t be able to save in 2022 due to higher bills

"These figures could have been worse, but the Omicron variant proved less impactful than many had initially feared," Richard Carter, head of fixed interest research at Quilter Cheviot, said. "While the government did opt to move to its ‘Plan B’, the UK avoided major public health restrictions such as lockdowns and we have since returned to ‘Plan A’.

"However, the Treasury’s debt servicing costs are rising given the impact of inflation and Bank of England (BoE) rate rises.

Meanwhile, Hoa Duong, economist at PwC, said: "More radical steps need to be taken if the chancellor wants to improve the financial outlook by the next Budget review in March. As restriction measures are lifted across the country, Rishi Sunak is under additional pressure to tighten his public finances as justification for continuing government support diminishes, but his task is not without challenges.

"All eyes are on National Insurance Contributions," he added. "Accounting for 20% of the government receipts in December, increasing National Insurance would potentially be a quick fix.

"However, it would be a significant extra burden for households as it would exacerbate the current rising cost of living for many."

Watch: Why can't governments just print more money?

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