(qlmbusinessnews.com . Fri 23rd Jan, 2026) London, UK —
December Delivers a Decline in UK Public Borrowing Thanks to Higher National Insurance Contributions
The UK witnessed a significant decline in government borrowing last month, attributable to an increase in tax revenue and higher National Insurance Contributions which superseded expenditure, according to the latest figures.
December saw government borrowing, which represents the gap between public expenditure and tax revenue, reach £11.6 billion, reported by the Office for National Statistics (ONS). This figure represents a 38% or £7.1 billion decrease compared to the same period last year, surpassing the forecasts of many economists, albeit still exceeding the borrowing amount recorded in December 2023.
Tom Davies, ONS Deputy Director for the public service division, attributed the decrease to “a strong rise in receipts from last year while spending has only seen a modest increase.”
Despite the yearly decrease, December 2025's borrowing figure was identified as the tenth highest for the month since records commenced in 1993, without taking inflation into account, and remained above the £8.1 billion borrowed in December 2023.
The data revealed a £7.7 billion or 8.9% increase in tax receipts for December 2025 compared with the same month the previous year. This increase includes rises in income tax, corporation tax, VAT, and National Insurance contributions (NIC), the latter affected by adjustments to the employer NIC rate implemented in April of the preceding year.
An ongoing freeze on income tax thresholds has led to more individuals either being newly subjected to tax or facing higher tax rates as their wages increase, a phenomenon known as fiscal drag.
An uptick in public spending was also noted in December, partly influenced by a rise in inflation-linked benefits, with provisional estimates placing spending at £92.9 billion, an increase of £3.2 billion (3.5%) from December 2024. However, the rise in spending was counterbalanced by the enhanced revenue from taxes and NIC contributions.
Provisional estimates put the total borrowing for the financial year up to December at £140.4 billion, marginally lower by about £300 million than the same timeframe in 2024, as stated by the ONS.
The borrowing figure was projected to be 4.6% of GDP, marking a 0.2 percentage point decrease from the previous year. This borrowing level is the third highest recorded for April-December, trailing only behind 2020 and 2024.
James Murray, Chief Secretary to the Treasury, commented on the government's efforts to “stabilise the economy, reduce borrowing, and eliminate waste in the public sector.” He highlighted that the government anticipates a more significant reduction in borrowing compared to other G7 countries, marking the lowest borrowing level since before the pandemic.
In contrast, Shadow Chancellor Mel Stride criticized the Labour party for overseeing record levels of borrowing for the second consecutive year, excluding the pandemic period. Stride emphasized the high cost of debt interest, which nearly doubles the expenditure on defence, and asserted that the Conservatives are the only party with a viable plan to restore fiscal stability.
The Office for Budget Responsibility (OBR) noted that public borrowing from April to December was £4.1 billion below its current prediction. The forecast for the final quarter of the financial year expects a 50% increase in capital gains tax (CGT) receipts in January compared to January 2025, as individuals dispose of assets in anticipation of higher CGT rates announced in the November Budget.
Ruth Gregory, Deputy Chief UK Economist at Capital Economics, expressed optimism about the recent improvements in public finances and anticipated a further boost in January due to a substantial inflow of self-assessment tax and CGT receipts. However, she cautioned that deficit reduction is progressing slowly.
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