UK Government Borrowing Hits Record Low: What's Driving the Change?

In December 2025, the UK government borrowing saw a significant decrease, dropping to £11.6 billion, down 38% from December 2024, according to figures from the Office for National Statistics (ONS). This decline is attributed mainly to a notable increase in tax revenue, particularly from National Insurance Contributions, which outpaced the growth in government spending. Tom Davies, Deputy Director of the ONS, attributed the decline to strong revenue collection while spending grew only modestly.

Despite this sharp fall, the December 2025 borrowing figure was still the tenth highest for this month since records began in 1993 and exceeded the £8.1 billion borrowed in December of the previous year. The government experienced an 8.9% rise in tax receipts, resulting in an additional £7.7 billion compared to December 2024. Key contributions to this increase included income tax, corporation tax, VAT, and NICs, influenced by an adjustment in NIC rates for employers. The freeze on income tax thresholds means that as wages rise, more individuals are pushed into higher tax brackets—a phenomenon known as fiscal drag.

Public spending also rose slightly, reaching £92.9 billion, an increase of 3.5% over the previous year, driven by inflation-linked benefits. However, this increase could not overtake the surge in tax and NIC income. For the financial year up to December, borrowing totaled £140.4 billion, about £300 million lower than the same period in the prior year and registering as 4.6% of GDP.

Government officials, including James Murray, the Chief Secretary to the Treasury, expressed satisfaction over stabilizing the economy and reducing borrowing while aiming for the lowest borrowing figures within the G7 this year since the pandemic. In contrast, Shadow Chancellor Mel Stride criticized the government’s record of high borrowing, noting that debt interest payments are significantly greater than defense spending, claiming only the conservatives have a credible plan for economic stability.

Looking ahead, the Office for Budget Responsibility (OBR) projects borrowing could decrease further in the upcoming months, anticipating an impressive increase in capital gains tax receipts. Ruth Gregory, deputy chief UK economist at Capital Economics, noted signs of improvement in public finances but cautioned that the overall pace of deficit reduction remains slow.