Government debt fell sharply in December after a rise in income tax and social security revenue helped narrow the monthly deficit, providing short-term relief to the Treasury but little comfort about the longer-term health of public finances.
Figures released by the Office for National Statistics showed public sector borrowing fell to £11.6 billion in December, £7.1 billion less than the same month last year, a fall of 38 per cent.
The improvement was due to a strong increase in sales. Total tax revenue rose by £7.7bn year-on-year to £94bn, while public spending rose by a more modest £3.2bn to £92.9bn.
Tom Davies, senior statistician at the ONS, said the fall in borrowing was due to “income rising sharply compared to last year, while spending is only slightly higher”.
However, the overall public finance picture remains tense. In the first nine months of the financial year, borrowing totaled £140.4 billion, just £300 million less than the same period last year and still the third highest April-December borrowing since records began in 1993.
Public sector debt now stands at 95.5 percent of GDP, up from 35 percent before the 2008 financial crisis and 0.9 percentage points higher than a year ago. Higher interest rates continue to exert pressure, with £9.1bn spent servicing the national debt in December alone.
Dennis Tatarkov, senior economist at KPMG UK, said rising debt interest costs remained a structural challenge despite the month-on-month improvement.
The figures come against a backdrop of ongoing economic uncertainty following years of shocks such as Brexit, the pandemic, volatility in energy prices following Russia’s invasion of Ukraine and the fallout from Liz Truss’ 2022 mini-budget.
Chancellor Rachel Reeves raised taxes by around £70 billion in her first two budgets, but ONS data suggests this has not yet significantly reduced borrowing over the year.
Treasury chief secretary James Murray said the government was “stabilizing the economy, reducing borrowing and ensuring public services deliver value for money”.
Independent commentators were less convinced. Philly Ponniah, a licensed asset manager at Philly Financial, said December’s improvement should not be confused with a turning point.
“The UK still has one of the largest peace deficits ever,” he said. “High debt limits future decisions and reduces resilience when the next shock comes.”
With inflation still above target and growth fragile, economists warn that sustained improvement will depend less on tax revenues and more on long-term productivity and investment-led growth.
