The UK government borrowed less than expected in December, official figures show, after record-breaking receipts, giving a boost to the chancellor.
Public sector net borrowing – the difference between spending and income – was £11.6bn last month, the Office for National Statistics (ONS) said, compared with £18.7bn in the same month a year earlier.
Economists polled by Reuters had expected borrowing to be £13bn in December. The figure is closely watched by the City as it shows how much the government is borrowing to finance its spending plans and whether it is exceeding its target for the year.
Ruth Gregory, the deputy chief UK economist at Capital Economics, said: “The public finances are finally showing signs of improvement in recent months.”
The better-than-expected figures came as a result of stronger tax revenues, due to increases in national insurance contributions (NICs) introduced last April and higher wage growth. The ONS said the government’s combined receipts, from the likes of income tax and NICs, rose by £7.7bn compared with a year earlier, to £94bn. This was the highest total in any December on record. The receipts outweighed the £3.2bn rise in public spending to £92.9bn over the same period.
Tom Davies, a senior statistician at the ONS, said: “Borrowing in December was substantially down on the same month in 2024, as a result of receipts being up strongly on last year, whereas spending is only modestly higher.”
Borrowing in the financial year so far to December was £140.4bn, down £300m compared with the same period last year, but this still amounted to the third-highest borrowing figure over the nine-month period since ONS records began in 1993. In more welcome news for the Treasury, borrowing in the previous months of the financial year was revised down by a combined £3.5bn, after the ONS calculated an extra £1.9bn increase in corporation tax.
The chancellor, Rachel Reeves, has made reducing government borrowing a priority, with the national debt hitting 95.5% of gross domestic product in December, a level not seen since the early 1960s. The cost of servicing that debt is high, with £1 in every £10 spent by the government going on debt interest. The ONS said the government spent £9.1bn on interest payments in December.
Reeves announced £26bn in tax rises in her autumn budget in November to lower debt and offset rising government spending on public services and upgrades to the UK’s infrastructure. Reeves has implemented a fiscal rule that requires the government to fund day-to-day spending with taxes by the end of the parliament.
The Office for Budget Responsibility (OBR), the UK’s official fiscal forecaster, said in its November report that Reeves’s tax rises had created £22bn in spending headroom against this fiscal rule.
The OBR has projected that public sector net borrowing for the financial year will fall to £138bn, down from £152.6bn a year earlier, and take the deficit to 4.5% of GDP, down from 5.2% in 2024-25. Borrowing will then decrease every year to reach £67bn by 2031.
In response to the figures, James Murray, the chief secretary to the Treasury, said: “We are stabilising the economy, reducing borrowing, rooting out waste in the public sector and making sure that public services deliver value for taxpayers’ money.”
A bigger surplus for the Treasury is expected in January, with higher self-assessed tax receipts and a predicted jump in capital gains tax receipts, as people dispose of assets before a potential rise in the tax in Reeves’s autumn budget.
