Borrowing hits a four-year high for December
The Treasury borrowed more than expected last month to record the highest December sum for four years, official figures have shown, with higher debt interest payments adding to the bill.
The Office for National Statistics (ONS) reported a net borrowing figure for December of £17.8bn when a sum just above £14bn had been expected by economists.
It left public sector net borrowing £10.1bn up on the same month last year and £8.9bn higher than at the same point in the last financial year but still within the range expected by the Office for Budget Responsibility.
Borrowing is on the up amid a budget-led drive for public sector investment, but the ONS data showed an £8.3bn debt interest bill – the third-highest December total on record.
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The report said that higher bill was mainly explained by shifts in the rate of inflation linked to the borrowing.
A £1.7bn payment for the repurchase of military dwellings added to the total December figure.
The data was revealed as Chancellor Rachel Reeves attends the World Economic Forum in Davos for a series of meetings with global business leaders in a bid to showcase the UK.
There is a chill, however, around the UK’s immediate economic prospects with investors recently piling pressure on her stewardship of the public finances by demanding higher risk premiums to hold UK government debt in the form of bonds, known as gilts.
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Long-term borrowing costs hit highs not seen since 1998 earlier this month, with the 30-year UK gilt yield still above 5%.
It ticked up by eight basis points in the wake of the ONS report being released.
The first six months in charge of the public finances have proved a baptism of fire for the chancellor, who promised during the election campaign to make economic growth her top priority.
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But she and the prime minister have been subsequently accused of shattering confidence through warnings of a “tough” budget ahead due to an alleged black hole in the public finances inherited from the Tories.
It was measured at £22bn and her fiscal statement on 30 October put business mainly on the hook for £40bn of tax increases announced.
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The economy is estimated to have largely flatlined during the second half of last year, with major employers warning that investment, jobs and pay growth ahead are under threat to help offset the impact of the additional costs due from April when tax hikes, including from employer national insurance contributions, take effect.
They have also stated that higher prices for consumers will also form part of the mix.
Employment figures released on Tuesday suggested that firms were already taking action.
Data from HM Revenue & Customs showed the number of payrolled employees was estimated to have fallen by 47,000 during the 12 months to December – the biggest drop since November 2020.
Economists see economic growth being supported this year by public sector investment announced in the budget.
The big question mark is over the contribution from the private sector.
Jessica Barnaby, deputy director for public sector finances at the ONS, said: “At almost £18bn, borrowing last month was the third highest in any December on record.
“Compared with December 2023, spending on public services, benefits, debt interest and capital transfers were all up, while an increase in tax receipts was partially offset by a reduction in national insurance contributions, following the rate cuts earlier in 2024.”
Chief Secretary to the Treasury Darren Jones said of the data: “Economic stability is vital for our number one mission of delivering growth, that’s why our fiscal rules are non-negotiable and why we will have an iron grip on the public finances.
“Through our spending review we will interrogate every line of government spending for the first time in 17 years. We’ll root out waste to ensure every penny of taxpayer’s money is spent productively and helps deliver our Plan for Change.”
Thousands of job cuts at the NHS will go ahead after the £1bn needed to fund the redundancies was approved by the Treasury.
The government had already announced its intention to slash the headcount across both NHS England and the Department of Health by around 18,000 administrative staff and managers, including on local health boards.
The move is designed to remove “unnecessary bureaucracy” and raise £1bn a year by the end of the parliament to improve services for patients by freeing up more cash for operations.
NHS England, the Department of Health and Social Care, and the Treasury had been in talks over how to pay for the £1bn one-off bill for redundancies.
It is understood the Treasury has not granted additional funding for the departures over and above the NHS’s current cash settlement, but the NHS will be permitted to overspend its budget this year to pay for redundancies, recouping the costs further down the line.
‘Every penny will be spent wisely’
Chancellor Rachel Reeves is set to make further announcements regarding the health service in the budget on 26 November.
And addressing the NHS providers’ annual conference in Manchester today, Mr Streeting is expected to say the government will be “protecting investment in the NHS”.
He will add: “I want to reassure taxpayers that every penny they are being asked to pay will be spent wisely.
“Our investment to offer more services at evenings and weekends, arm staff with modern technology, and improving staff retention is working.
“At the same time, cuts to wasteful spending on things like recruitment agencies saw productivity grow by 2.4% in the most recent figures – we are getting better bang for our buck.”
Health Secretary Wes Streeting during a visit to the NHS National Operations Centre in London earlier this year. Pic: PA
Mr Streeting’s speech is due to be given just hours after he became entrenched in rumours of a possible coup attempt against Sir Keir Starmer, whose poll ratings have plummeted ahead of what’s set to be a tough budget.
Mr Streeting’s spokesperson was forced to deny he was doing anything other than concentrating on the health service.
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He is also expected on Wednesday to give NHS leaders the go-ahead for a 50% cut to headcounts in Integrated Care Boards, which plan health services for specific regions.
They have been tasked with transforming the NHS into a neighbourhood health service – as set down in the government’s long-term plans for the NHS.
Those include abolishing NHS England, which will be brought back into the health department within two years.
Watch Wes Streeting on Mornings With Ridge And Frost from 7am on Sky News.
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