Government Borrowing Falls Sharply as National Insurance Hike Boosts Coffers
The Office for National Statistics has reported a significant reduction in UK government borrowing for December, with figures showing a substantial decline compared to the same period last year. According to the latest data, borrowing stood at £11.6 billion for the month, representing a notable improvement in the nation's fiscal position.
Sharp Decline in Borrowing Figures
The statistics reveal that borrowing was £7.1 billion less than in December 2024, marking a dramatic 38% decrease. This figure also came in £1.6 billion below the forecast made by the Office for Budget Responsibility, exceeding expectations from both government forecasters and independent economists who had anticipated borrowing around £13 billion.
Nevertheless, the December borrowing figure represents the tenth highest for the month since records began in 1993, though this assessment does not account for inflation adjustments. The borrowing measurement reflects the difference between government expenditure on public services and income generated through taxation and other revenue streams.
Tax Receipts Drive Improvement
A substantial increase in tax income played a crucial role in reducing the government's borrowing requirements. Central government tax receipts surged by £7.7 billion compared to the previous year, representing an 8.9% increase. This boost was primarily driven by higher collections across several key tax categories:
- Income tax contributions
- Corporation tax payments
- Value Added Tax receipts
The increase to employer national insurance rates implemented in April significantly contributed to the elevated level of contributions, providing additional revenue to the Treasury during the crucial December period.
Spending Increases and International Payments
While tax receipts showed strong growth, government expenditure also increased during December. Total central government spending on public sector services, benefits, and debt interest rose by £3.2 billion compared to December 2024. Several factors contributed to this uptick in expenditure:
- Inflation-linked increases to various benefit payments
- Higher state pension payments
- Increased spending on goods and services due to pay rises and inflation-driven operating costs
Conversely, international grant payments decreased by £1.3 billion, partly reflecting reduced contributions to European Union institutions following Brexit-related adjustments to payment schedules.
Broader Financial Year Perspective
Tom Davies, senior statistician at the ONS, commented on the figures: "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."
Looking at the broader financial picture, borrowing for the period from April to December totalled £140.4 billion according to provisional estimates. This represents a slight decrease of £300 million, or 0.2%, compared with the same nine-month period in 2024. The Office for Budget Responsibility noted this was £4.1 billion below its current forecast, attributing the lower-than-expected borrowing to reduced government spending against projections.
During this nine-month period, both central government tax receipts and total spending grew by 7.6% year on year, indicating balanced fiscal expansion across revenue and expenditure categories.
Government and Analyst Responses
Chief Secretary to the Treasury James Murray welcomed the figures, stating: "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." He emphasised the government's commitment to economic stabilisation, borrowing reduction, and ensuring value for taxpayers' money in public service delivery.
Financial analysts offered more nuanced perspectives on the data. Danni Hewson, head of financial analysis for AJ Bell, observed: "The significant fall in government borrowing in December will be a relief for the Treasury, especially since January's numbers are likely to look even better with a surge in self-assessment receipts expected."
She noted that frozen tax thresholds combined with substantial pay increases have resulted in higher tax payments from individuals, while changes to employer national insurance implemented by Chancellor Rachel Reeves contributed significantly to the £7.7 billion increase in total receipts.
However, Hewson cautioned that the broader financial year picture reveals more complex challenges, with total borrowing to the end of December reaching levels only seen twice before in historical records. She highlighted that forthcoming increases to benefit payments scheduled for April would maintain pressure on public finances, suggesting the Treasury's relief might be temporary amid ongoing fiscal pressures.
