Government borrowing lowest in four years as debt remains at historical highs

The Office for National Statistics (ONS) said that public sector net borrowing hit £7.8 billion during the month

The Government borrowed less money last month than in any December in four years, but debt remains at historical highs, according to new data.

The Office for National Statistics (ONS) revealed that public sector net borrowing hit £7.8 billion during the month, which was £8.4 billion less than a year earlier and the lowest in any December since 2019. Experts had predicted it would reach £11.4 billion. "This was mainly due to a large drop in debt interest payments which reflected a fall in monthly RPI (retail price index) inflation in October, while the energy price schemes, which contributed to spending last winter, are no longer in place," explained Michal Stelmach, senior economist at KPMG UK.

Government spending on subsidies and other current grants, including the cost of the Energy Price Guarantee and other support schemes, was down by £5.9 billion on a year ago. A year ago, changes to student loan repayments came into force, leading the Government to expect about £10 billion more from people repaying their loans.

The interest that the Government paid on loans was £4 billion in December 2023, which is £14.1 billion less than a year earlier. This significant decrease is largely due to a drop in inflation as measured by the Retail Prices Index from its peak.

The UK's total net debt was a whopping £2.69 trillion at the end of the year, which is about 97.7% of the size of our economy, or gross domestic product (GDP). Despite borrowing falling last month, the debt to GDP ratio is still 1.9 percentage points higher than last December - levels we've not seen since the early 1960s.

Laura Trott, Chief Secretary to the Treasury, said: "Protecting millions of lives and livelihoods during Putin's energy shock and a once-in-a-century pandemic has created economic challenges." She added: "However, it is right that we pay back these debts so future generations are not left to pick up the tab."

Trott also stated: "Because of this Government's decisive action, the economy is now beginning to turn a corner. Inflation has more than halved. Debt is on track to fall as a share of the economy. And we have been able to afford tax cuts for 27 million working people, and an £11 billion tax cut to drive business investment."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, believes that falls in gilt yields, which is the interest the Government pays on some of its loans, and the expectation that interest rates will fall will give the Treasury more wiggle room. He said: "In the budget on March 6, (Chancellor Jeremy) Hunt almost certainly will cut personal taxes in a bid to improve his party's chances in the general election,"

* An AI tool was used to add an extra layer to the editing process for this story. You can report any errors to webhomepage@mirror.co.uk