In December 2025 UK government borrowing collapsed to £7.1 billion. This was a major fall of 38% on £11.6 billion in December 2024. This reduction in borrowing indicates a positive trend in public finances, attributed largely to an increase in tax income that exceeded spending levels. When the Office for National Statistics (ONS) gave these figures, it was considered a staggering shock to the economic world.
Ruth Gregory, the deputy chief UK economist at Capital Economics, commented on the recent developments, stating that public finances are “finally showing signs of improvement in recent months.” According to the ONS, increased tax revenue has been a key factor in this reversal of borrowing trends. Tom Davies, Deputy Director for the ONS public service division, explained that the decline was primarily driven by “receipts being up strongly on last year whereas spending is only modestly higher.”
In December 2025, the government reaped a £7.7 billion windfall in tax revenues relative to December 2024. This explosion is indicative of a whopping 8.9% increase YoY. This increase in tax revenue easily outstripped the meager increase in federal outlays over that time. Total net borrowing for the financial year to December was £140.4 billion. This is over £300 million lower than the borrowing from the previous year.
While December’s borrowing figure of £7.1 billion stands as the tenth highest recorded for the month since records began in 1993, it marks a substantial improvement in comparison to economists’ predictions of higher borrowing levels.
James Murray, a government spokesperson, emphasized the importance of these figures, stating that efforts are focused on “stabilising the economy, reducing borrowing, and rooting out waste in the public sector.” He noted that “last year we doubled our headroom and we are forecast to cut borrowing more than any other G7 country with borrowing set to be the lowest this year since before the pandemic.”
Looking to the future, experts expect even more progress in January. Ruth Gregory, senior economist at the IFS, noted that future figures may reflect an increase in self-assessment tax and capital gains tax receipts. She says this increase is due to the income tax threshold freeze and asset sales motivated by speculation about future changes to tax laws.
“What’s more, a further improvement in January is on the way. Those figures will probably show a bumper set of self-assessment tax and capital gains tax (CGT) receipts reflecting the freeze on income tax thresholds and a disposal of assets due to the speculation that Reeves would raise CGT.” – Ruth Gregory