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December borrowing falls sharply
The UK government borrowed £11.6 billion in December 2025, a 38% decline from the same month last year, according to the Office for National Statistics (ONS). The figure, while lower than economists' forecasts, remains above the £8.1 billion recorded in December 2023.
Tax revenue drives decline
Higher tax receipts, including income tax, corporation tax, VAT, and National Insurance contributions (NICs), fueled the reduction. The ONS reported an 8.9% year-on-year increase in tax income, totaling £7.7 billion more than in December 2024. Changes to employer NIC rates, introduced in April 2025, contributed to the rise, alongside fiscal drag-where frozen income tax thresholds push more earners into higher brackets as wages grow.
Spending rises but lags revenue growth
Public spending reached £92.9 billion in December, a 3.5% increase from 2024, partly due to inflation-linked benefit adjustments. However, the growth in tax revenue outpaced expenditure, narrowing the deficit. Despite the improvement, December's borrowing ranked as the tenth highest for the month since records began in 1993.
Year-to-date borrowing trends
Provisional figures show borrowing for the financial year to December totaled £140.4 billion, marginally lower than the same period in 2024. At 4.6% of GDP, the deficit was 0.2 percentage points below last year's level but still the third-highest for April-December on record, trailing only 2020 and 2024.
"Receipts are up strongly on last year, while spending is only modestly higher," said Tom Davies, ONS Deputy Director for public services.
Office for National Statistics
Political reactions and forecasts
Chief Secretary to the Treasury James Murray attributed the improvement to government policies, stating: "We are stabilising the economy, reducing borrowing, and rooting out waste." He highlighted forecasts projecting the lowest borrowing since pre-pandemic levels.
Shadow Chancellor Mel Stride countered, arguing Labour had overseen "record borrowing" for two consecutive years. He emphasized rising debt interest costs, which he claimed nearly doubled defense spending, and advocated for Conservative plans to restore fiscal stability.
Economists caution on pace of progress
The Office for Budget Responsibility (OBR) noted that April-December borrowing undershot its forecast by £4.1 billion (2.8%). However, it expects a 50% surge in capital gains tax (CGT) receipts in January 2026, as taxpayers sell assets ahead of anticipated rate hikes in the November Budget.
"Public finances are finally showing signs of improvement, with further gains likely in January," said Ruth Gregory, Deputy Chief UK Economist at Capital Economics. "But the big picture remains one of slow deficit reduction."
Capital Economics
