UK government borrowed less than expected in December

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The UK government borrowed much less than expected in December, in a boost to chancellor Jeremy Hunt’s plans to cut taxes ahead of this year’s expected general election.

Public sector borrowing fell to £7.8bn last month, about half the sum borrowed a year earlier and the lowest figure for a December since 2019, according to data published by the Office for National Statistics.

The figure, which was driven down by inflation-related debt interest costs, is substantially lower than the £14bn prediction for the month from the Office for Budget Responsibility, the UK’s fiscal watchdog.

Hunt is seeking more room for giveaways ahead of the election as the governing Conservative party consistently trails behind Labour in opinion polls.

In November’s Autumn Statement, Hunt cut business and personal taxes by £20bn, but this did not stop the projected tax burden from continuing to rise.

The chancellor and Prime Minister Rishi Sunak have since been touting the prospect of pre-election tax cuts in the upcoming Budget as they bank on getting extra “headroom” against the UK’s key fiscal rule, which requires the ratio of public debt to gross domestic product to be falling in five years’ time.  

The tax-cutting measures outlined in the Autumn Statement, alongside other budgetary decisions including on welfare spending, left the chancellor a projected £13bn of headroom. However, economists say this fiscal wiggle-room could increase because of lower payments of debt interest as markets bet on Bank of England rate cuts. 

The ONS said the government’s debt interest bill last month was the lowest for a December since 2020 as inflation declines, reducing payments on index-linked gilts.

Ruth Gregory, an analyst at Capital Economics, said that after nine months of the fiscal year 2023-24, government borrowing was on track to undershoot the…