The UK government's borrowing requirement experienced a significant contraction in December, with official data revealing a sharp decline as increased tax revenues bolstered the Treasury's coffers.
Substantial Year-on-Year Reduction in Borrowing
According to the latest release from the Office for National Statistics (ONS), public sector net borrowing stood at £11.6 billion for December 2025. This figure represents a substantial reduction of £7.1 billion compared to the same month in the previous year, equating to a notable 38% decrease.
The December borrowing total also came in considerably below market expectations, outperforming the £13 billion forecast that had been widely anticipated by economists and financial analysts.
Historical Context and Inflation Considerations
Despite this encouraging reduction, the ONS noted that December's borrowing figure still represents the tenth highest for that particular month since modern records began in 1993. This historical ranking, however, does not account for inflationary adjustments over the three-decade period.
Government borrowing essentially reflects the gap between public expenditure and revenue generation. When spending exceeds income from taxes and other sources, the Treasury must borrow to cover the shortfall, whereas a surplus occurs when income surpasses expenditure.
Drivers Behind the Improved Fiscal Position
The dramatic improvement in the government's borrowing position stemmed primarily from a robust increase in tax receipts during December. Central government tax revenues surged by £7.7 billion compared to the same period in 2024, creating a significant positive impact on the public finances.
This revenue boost resulted from multiple taxation streams performing strongly, including:
- Increased income tax contributions
- Higher corporation tax receipts
- Greater VAT collections
- Elevated national insurance contributions
The national insurance component proved particularly significant, with recent policy changes contributing substantially to the overall revenue increase that helped offset government spending.
Expert Analysis from the ONS
Tom Davies, a senior statistician at the ONS, provided context to the figures, stating: "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."
Davies further elaborated on the broader fiscal picture, noting: "However, across the first nine months of the financial year as a whole, borrowing was fractionally lower than in the same period in 2024."
Broader Financial Year Perspective
Examining the cumulative position for the current financial year reveals a more modest improvement. From April through December 2025, government borrowing decreased by £300 million compared to the equivalent nine-month period in 2024, representing a marginal reduction of just 0.2%.
This indicates that while December's performance was particularly strong, the overall fiscal improvement across the financial year to date remains relatively slight, suggesting variability in monthly borrowing patterns throughout the period.
The December figures provide encouraging evidence of strengthening public finances, though they form just one component of the broader fiscal landscape that will continue to evolve throughout the remainder of the financial year.
