UK borrowing hits new record thanks to debt interest and energy bill support

The government borrowed £27.4 billion in December 2022 – £16.7 billion more than December 2021, the latest UK public sector finances out today showed.

Debt to GDP ratio jumped to 99.5%, levels last seen in the 1960s.

Danni Hewson, AJ Bell financial analyst, said: “The impact of sky-high energy prices isn’t just being felt by households and businesses, it’s also taking a big bite out of the UK’s public finances. Borrowing shot up to record levels for December last month, eclipsing even that required to nurture the country through two previous challenging Christmases when Covid was rampant.

“The cost of energy support schemes so far has come in at almost £5 billion but it’s the impact that energy prices had on inflation in October when our bills jumped that’s had the biggest impact of all. With around a quarter of government bonds linked to RPI, debt interest payable doubled compared to last year’s figure.

“The debt to GDP ratio now stands at 99.5%, the kind of ratio not seen since the 1960s. It all makes for a pretty uncomfortable situation for a Chancellor determined to start reversing the debt to GDP trajectory. But strip out the costs associated with all this energy support and borrowing would have come in at a lower level than had been forecast.

“The tax take is up by £3.4 billion compared to a year ago and that levy on exceptional profits of energy giants is also bearing fruit.

“The government has already announced that energy support schemes will become much less generous from the spring and current projections suggest the price the government will have to pay to subsidise our bills won’t be anywhere near the levels that had been anticipated.

“Wholesale gas prices have fallen substantially. Inflation has begun a slow and the UK economy has proven more robust than economists had predicted.

“Is recession already knocking on the door? How will the labour market hold up if the economy stalls or even if it simply continues its torturously turgid sleepwalk shuffle?

“The spring budget will deliver clarity and a bit more wiggle room for the Chancellor than he may have been expecting. But there will be demands placed on that windfall, a requirement to keep supporting the most vulnerable whilst attempting to fuel up the economy without pouring it onto smouldering inflation.”