Public Sector Net Borrowing Rises as Treasury Troubles Mount

Word for the Week:

Discombobulate: to confuse of disconcert someone.

Public Sector Net Borrowing Rises as Treasury Troubles Mount

This morning, data from the ONS indicated that public sector net borrowing, excluding public sector banks, rose to ￡17.81bn in December. This marks the second highest December deficit since records began in 1993, and was ￡10.1bn higher than December 2023.

This rise in the deficit is in part attributable to the ￡13bn increase in public sector spending over the month of December. Such an increase in spending follows a ￡3.8bn increase in interest payable on central government debt, a ￡2.9bn rise in central government departmental spending and a ￡2.2 growth in net social benefits paid by central government.

Alongside a rise in spending, tax receipts rose by ￡2.9bn to ￡94.4bn over December. This follows a receipt rising by ￡2.8bn for Income Tax and ￡0.8bn for Corporation Tax.

The latest figures for December now show that when the FY 2024/25 is considered in aggregate, borrowing remained ￡4.1bn above the OBR's forecast of ￡125.9bn.

Of course, today’s figures come against a backdrop of market focus in the UK, continuing to be underpinned by moves in the gilt market as participants consider the possibility of more persistent inflation, dampened growth, higher costs of government borrowing and a higher natural rate of interest.

Hence, today’s data will again raise eyebrows over whether Reeves will be able to meet her own fiscal responsibility rules given the surge in borrowing costs.

During the Autumn Statement, Reeves signalled that the budget had left No.11 with ￡9.9bn worth of fiscal headroom, however any rise in borrowing naturally narrows this headroom, leaving the government with a fiscal pain-in-the-neck.

Accordingly, the treasury now has three options generally speaking. Firstly the Treasury could cut public spending, Secondly, they could increase taxes, or Thirdly they could change their borrowing rules (likely leading to a further hit to the UK’s fiscal credibility, which in turn will increase borrowing costs and exacerbate the very issue they’re faced with).

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Protest in Georgia

Last week, Giorgi Gakharia - the Former Georgian Prime Minister and opposition party leader – was attacked in a hotel in Batumi, apparently by members of the pro-Russian Georgian Dream party.

Associates of Gakharia called the incident a "brutal, coordinated group attack" and a “blatant attempt to intimidate the opposition and suppress dissenting voices”.

This comes as tensions in the country mount over Georgian Dream’s increasing grip on power, which have led to widespread demonstrations and protests that have surpassed their 50th Day.

The latest episode of fragility follows Georgia’s election in October, which was marked by controversy and culminated in pro-Western parties rejecting the victory claimed by the pro-Russian Georgian Dream party, maintaining that there were unprecedented levels of Russian interference.

Georgian Dream has been in power for 12 years – and has been described as a “culturally conservative illiberal Eurosceptic party” which has sought to firm up ties with Russia. The party’s de facto leader is the oligarch Bidzina Ivanishvili whose opaque wealth is estimated to be equivalent to 25% of Gerogia’s GDP. As the Guardian’s Pjotr Sauer writes, “in a recent interview laced with transphobic and homophobic rhetoric reminiscent of far-right online forums, Ivanishvili portrayed Georgia as locked in a cultural struggle against the west”.

The rising tension in Georgia comes at a time when many consider Georgia to be at a critical juncture. Down one path is embracing liberal democracy and integration with the EU alongside NATO. Down another lies a clamp down on civic and democratic society while being subsumed into Moscow’s sphere of influence.