Executive summary: UK government borrowing fell sharply in December 2025, dropping 38% to £11.6 billion as increased tax and National Insurance Contributions outweighed public spending, according to official figures. This decline, while significant, still leaves borrowing at historically high levels for the month.
The Office for National Statistics (ONS) reported that public sector net borrowing in December 2025 was £11.6 billion, a decrease of £7.1 billion or 38% compared to December 2024. This figure was lower than many economists had anticipated but remains higher than the £8.1 billion borrowed in December 2023. Tom Davies, Deputy Director for the ONS public service division, attributed the fall to “receipts being up strongly on last year whereas spending is only modestly higher.” Despite the annual reduction, the December 2025 borrowing level was the tenth highest for the month since records began in 1993, without adjusting for inflation.
The sharp decline in borrowing was primarily driven by a substantial increase in tax revenues. The government collected £7.7 billion more in taxes in December 2025 than in the same month the previous year, an 8.9% rise. This increase included higher receipts from income tax, corporation tax, VAT, and National Insurance contributions (NIC). Changes to the rate of NIC paid by employers, which came into effect in April 2024, contributed to this boost. Additionally, the ongoing freeze on income tax thresholds has led to fiscal drag, where more people are pulled into paying tax or higher tax rates as their wages increase.
Public spending also rose in December, partly due to increased inflation-linked benefits. Provisional estimates put spending at £92.9 billion, which is £3.2 billion or 3.5% more than in December 2024. However, this increase was more than offset by the growth in tax and NIC revenues, resulting in the lower borrowing figure. The ONS noted that the rise in spending was modest compared to the surge in receipts, highlighting the imbalance that favored reduced borrowing.
Looking at the broader financial year from April to December 2025, borrowing totalled £140.4 billion, approximately £300 million lower than the same period in 2024. This represents 4.6% of GDP, a slight decrease of 0.2 percentage points from the previous year. It marks the third-highest level of borrowing for the April-December period on record, following the peaks in 2020 and 2024. The Office for Budget Responsibility (OBR) indicated that public borrowing between April and December was £4.1 billion or 2.8% below its current forecast, suggesting some fiscal improvement.
Political reactions to the figures were mixed. Chief Secretary to the Treasury, James Murray, stated that the government is “stabilising the economy, reducing borrowing, rooting out waste in the public sector.” He emphasized that borrowing is forecast to be the lowest this year since before the pandemic. In contrast, Shadow Chancellor Mel Stride criticized the Labour government, calling it the second year in a row of record borrowing outside the pandemic and highlighting that debt interest costs are nearly double defence spending.
Economists provided cautious optimism. Ruth Gregory, deputy chief UK economist at Capital Economics, said public finances are “finally showing signs of improvement in recent months” and anticipated a further boost in January from self-assessment and capital gains tax receipts. However, she cautioned that “the pace of deficit reduction remains very slow,” indicating ongoing challenges. The OBR forecasts a 50% rise in capital gains tax receipts in January due to asset disposals ahead of anticipated tax increases in the November Budget.
In summary, while the December figures show a positive trend with reduced borrowing, the UK’s public finances remain under pressure with high historical borrowing levels. The upcoming months will be critical as tax receipts and economic conditions evolve, influencing the government’s fiscal strategy and broader economic stability.
