(Alliance News) - The UK government borrowed less than expected in December, figures from the Office for National Statistics showed on Tuesday, as calls for the Treasury to cancel a contentious tax hike intensified. UK public sector net borrowing - excluding public sector banks - was estimated to have been GBP16.8 billion in December, higher than GBP14.7 billion in November.
The latest figure was below the market forecast of GBP18.5 billion, though it was the fourth-highest December borrowing number since monthly records began in 1993. Commenting on the data, Richard Carter, head of fixed interest research at Quilter Cheviot, said: "These figures could have been worse, but the Omicron variant proved less impactful than many had initially feared.
While the government did opt to move to its 'Plan B', the UK avoided major public health restrictions such as lockdowns and we have since returned to 'Plan A'. However, the Treasury's debt servicing costs are rising given the impact of inflation and Bank of England rate rises." "With the political uncertainty currently at play, the chancellor will no doubt be all the more eager to return public finances to a 'sustainable footing'. This will be no mean feat considering the long list of spending projects he has on the go.
" The figures come as UK Chancellor Rishi Sunak faces pressure from factions within the government's ranks and opposition members alike to reverse planned increases in National Insurance contributions in April. Sunak said: "Risks to the public finances, including from inflation, make it even more important that we avoid burdening future generations with high debt repayments. "Our fiscal rules mean we will reduce our debt burden while continuing to invest in the future of the UK.
" Earlier this month, Jacob Rees-Mogg, leader of the House of Commons, told the cabinet that the GBP12 billion tax rise - intended to fund the NHS and social care - could not be justified at a time of rising inflation and soaring energy bills. On Monday, David Davis, the former Brexit secretary, warned Tory voters will "evaporate" unless the National Insurance increase is scrapped. Economists have warned that interest payments on public debt will rise further yet, as the UK consumer price index is set to increase from 5.4% currently to above 6% in the spring.
Higher interest rates also affect payments on government borrowing, with the OBR previously warning that even a one percentage point rise in rates would cost the UK an extra GBP23 billion in interest payments on its huge debt mountain. Samuel Tombs at Pantheon Macroeconomics said: "Surging inflation is making the chancellor's task of returning the public finances to a sustainable footing much more difficult.
"Despite this, Sunak probably still will intervene in the Spring Statement on March 23, if not sooner, to alleviate the 'cost of living crisis' set to engulf households in April." However, Capital Economics believes the chancellor still has enough fiscal space to cancel April's rise in National Insurance contributions. "As it stands, cumulative borrowing in 2021/22 is still on track to hit the OBR's forecast of GBP183 billion.
But we doubt that this will last: we expect RPI inflation to average 2.8 percentage points higher than the OBR's forecast in 2022/23, which will push up total borrowing in 2022/23 to GBP105 billion, well above the OBR's forecast of GBP83 billion," said Capital Economics economist Bethany Beckett. "Even so, on our forecasts, the chancellor would have enough fiscal room to cancel the scheduled increase in NIC taxes on 1 April, if he decided to cushion the blow to households from the energy crisis," added Beckett. By Arvind Bhunjun; arvindbhunjun@alliancenews.com Copyright 2022 Alliance News Limited. All Rights Reserved.
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