Government Borrowing Declines Amid Rising Tax Revenues

Government borrowing has significantly decreased by £7 billion in December compared to a year earlier, according to official figures from the Office for National Statistics (ONS). The government borrowed £11.6 billion last month, representing a 38 per cent reduction from December 2024, when the borrowing figure stood at £18.7 billion. Analysts had anticipated a borrowing total of £13 billion for the month.

The drop in borrowing can largely be attributed to an increase in tax revenues. The ONS reported that tax receipts rose by £7.7 billion annually in December, reaching £94 billion. In contrast, public spending during the same period increased by a more modest £3.2 billion, totalling £92.9 billion.

Tom Davies, a senior statistician at the ONS, commented on the recent trends, stating that the significant drop in borrowing was mainly due to a sharp increase in receipts from higher income tax and national insurance payments. While spending rose slightly, it was overshadowed by the growth in government revenue.

However, when examining public borrowing over a longer timeframe, the government’s financial position appears strained. The ONS data highlighted that in the nine months leading up to December, the government borrowed a total of £140.4 billion. This figure is just £300 million lower than the same period last year, marking the third-highest borrowing level for this nine-month timeframe since 1993.

Despite the reductions in borrowing, concerns persist regarding the sustainability of the public finances. Rachel Reeves, the Chancellor, has raised taxes by £70 billion in her two initial budgets, yet the ongoing need for fiscal consolidation remains evident.

Political pressures may challenge the government’s resolve to adhere to current fiscal strategies. Potential leadership changes within the Labour Party could lead to less fiscally responsible policies, impacting future borrowing forecasts.

The UK’s economy has faced numerous challenges in the past decade, including the ramifications of Brexit, the Covid-19 pandemic, a surge in energy prices due to geopolitical tensions, and economic instability following previous budgetary decisions. These factors have led to increased government spending, further elevating the nation’s debt burden.

As of December, the ONS reported that national debt represented 95.5 per cent of GDP, up from 35 per cent prior to the global financial crisis of 2008. Rising interest rates, aimed at curbing inflation—which peaked at 11.1 per cent four years ago—are also straining public finances.

In December, the government spent £9.1 billion servicing debt repayments, which is an increase of £200 million compared to December 2024. Financial analysts believe that the Bank of England may consider reducing interest rates this year to stimulate economic growth.

James Murray, Chief Secretary to the Treasury, stated that efforts are underway to stabilise the economy, reduce borrowing, and ensure that public services deliver value for taxpayers.