Digital Zeitgeist – The UK Government’s Borrowing Reached A Record High In December Because Of Their Energy Support Policy
Spending exceeds receipts by £27.4bn, as higher interest payments also contribute to deficit.
In December, the amount of money borrowed by the government in the United Kingdom reached a record high of over £27 billion, the highest monthly total for the month of December since modern records began being kept thirty years ago. Government payments made to cushion the blow of soaring energy bills were a contributing factor.
According to the most recent report on the state of the UK’s finances, which was published by the Office for National Statistics (ONS), the government’s expenditures last month were higher than its income by a total of £27.4 billion.
The amount for December 2022 was greater than the £24 billion recorded in December 2020, when four million workers were participating in the government’s wage-subsidy furlough programme. Additionally, the figure for December 2022 was higher than the £16.7 billion borrowed in December 2021.
In his answer to the ONS statistics, Jeremy Hunt gave a strong signal that there would be no room for a substantial giveaway in the first budget that he would present in March.
The chancellor of the exchequer said: “Right now we are helping millions of families with the cost of living, but we must also ensure that our level of debt is fair for future generations.
“We have already taken some tough decisions to get debt falling, and it is vital that we stick to this plan so we can halve inflation this year and get growth going again – creating better-paid jobs across the country.”
According to the official figures, although tax collections in December were somewhat higher than they were in December 2021 at more than £74 billion, energy support initiatives for homes and companies contributed just over £9 billion to the total amount of money spent by the government.
According to the Office for National Statistics (ONS), increased interest payments of £17.3 billion on the United Kingdom’s national debt of more than £2 trillion also contributed to a greater overall borrowing amount than was anticipated. Some of the bonds, also known as gilts, that the government sells in order to finance its spending include interest payments that are linked to inflation as measured by the retail prices index. This index has been on the rise since the middle of 2021 and reached its highest point of 14.2% in October of last year.
According to the ONS, the amount paid in interest on debt was twice as high as the number for the same month a year earlier. This makes it the second-highest monthly total on record; the only higher amount was the £20 billion paid in interest on debt in June 2022.
As a result of the shortfall in December, the total amount of public borrowing in the first nine months of the financial year 2022-2023 stood at £128.1 billion. This figure is £5 billion higher than in the same period of 2021-22, but it is £2.7 billion less than what was predicted by the government’s independent watchdog, the Office for Budget Responsibility.
Following upward revisions to receipts, particularly the corporation tax paid on profits, the Office for Budget Responsibility (OBR) stated that it had revised down its previous estimates of borrowing for the current financial year by £4.6 billion. This was done to reflect the new, more accurate projections.
At the time of the autumn statement released by the Treasury in November, the Office for Budget Responsibility (OBR) stated that it projected government borrowing of £177 billion for the whole 2022-2023 fiscal year, which is an increase of approximately £49 billion from the previous year.
The amount that the government borrows is added to the national debt, which increased by 0.2 percentage points over the course of the previous year to reach 99.5% of the economy’s yearly production (gross domestic product) in December.
Ruth Gregory, a UK analyst at Capital Economics, said it was the third month in a row borrowing had been higher than the same month a year earlier. “December’s public finances figures provided more evidence that the government’s fiscal position is deteriorating fast,” Gregory said.
“Overall, today’s worse-than-expected public finances figures will only embolden the chancellor in the budget on 15 March to keep a tight grip on the public finances and mean that he waits until closer to the next general election, perhaps in 2024, before announcing any significant tax cuts.”
online sources: theguardian.com, ons.gov.uk, obr.uk, capitaleconomics.com