On the face of it, this morning’s public sector finance update is good news. The government borrowed £7.8 billion in December last year. This is well below the £11 billion that economists had expected and almost half the £14 billion last forecast by the Office for Budget Responsibility (OBR). These are the lowest borrowing figures for December since the pandemic hit.
Once again, larger tax receipts helped fill in the gaps: up on the year to £61.1 billion – £3.5 billion higher than December 2022 – though on this occasion they notably undershot the OBR’s expectations by £1.8 billion, suggesting a minor slowdown. A large contributor to lower borrowing figures overall was a fall in debt servicing payments, which were £4 billion last month. This is a staggering £14.1 billion less than the previous year, and £5.5 billion less than the OBR had forecast for December 2023.
This is all good news for Jeremy Hunt, who promised at the weekend that tax cuts were coming in the March Budget. Borrowing less than expected over the past few months will increase the Chancellor’s scope to offer up another round of tax cuts. This time he is expected to target income tax, for which he will need between £6 billion and £7 billion for every penny he wants to take off. Capital Economics is forecasting this morning that the OBR will revise its 2025-26 borrowing estimates significantly, giving the Chancellor roughly £20 billion’s worth of fiscal headroom for his next round of tax cuts.
But will it be enough to really move the dial? Once again, some select good news doesn’t really reflect the bigger picture. Despite lower-than-expected borrowing figures, public sector net debt still sits at £2.69 trillion – or roughly 97.7 per cent of the country’s GDP. This is ‘1.9 percentage points higher than in December 2022 and remains at levels last seen in the early 1960s’.