UK Government Borrowing Shows Significant December Decline
Official statistics have revealed a substantial reduction in UK government borrowing during December, with figures coming in better than economists had anticipated. The Office for National Statistics reported that public sector net borrowing – representing the gap between government spending and income – stood at £11.6 billion last month.
This represents a notable improvement compared to the same period in 2024, when borrowing reached £18.7 billion. The December figure was significantly lower than the £13 billion forecast by economists surveyed by Reuters, indicating stronger-than-expected government receipts.
Year-to-Date Borrowing and Fiscal Context
For the financial year through December, cumulative borrowing reached £140.4 billion, marking a £300 million decrease from the equivalent period last year. Furthermore, borrowing figures for previous months were revised downward by a combined £3.5 billion, suggesting a more favourable fiscal trajectory than initially estimated.
Tom Davies, a senior statistician at the ONS, explained the December improvement: "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."
Persistent Debt Interest Burden
Despite the positive borrowing figures, significant pressure on public finances remains evident. The statistics reveal that £1 in every £10 of government spending currently goes toward debt interest payments. In December alone, interest costs accounted for £9.1 billion of the £11.6 billion net borrowing figure.
Chancellor Rachel Reeves has prioritised reducing government borrowing, particularly given the substantial burden of debt servicing costs. Dennis Tatarkov, a senior economist at KPMG UK, suggested this pressure might ease in coming months: "With interest rate cuts expected later this year and the eventual ending of the Bank of England's quantitative tightening programme on the horizon, the Treasury could see a marked decline in borrowing costs, potentially creating more room for public spending."
Fiscal Strategy and Future Projections
Reeves announced £26 billion in tax increases during her November autumn budget, designed to offset rising government expenditure on public services and national infrastructure upgrades. The Chancellor has implemented a fiscal rule requiring the government to fund day-to-day spending through taxation by the end of the parliamentary term.
The Office for Budget Responsibility, the UK's official economic forecaster, indicated in its November report that Reeves's tax measures created £22 billion in spending headroom against this fiscal rule. The OBR projects that public sector net borrowing for the financial year will decline to £138 billion, down from £152.6 billion a year earlier, reducing the deficit to 4.5% of gross domestic product from 5.2% in 2024-25.
According to OBR forecasts, borrowing is expected to decrease annually, reaching £67 billion by 2031. James Murray, Chief Secretary to the Treasury, commented on the government's approach: "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."
Murray emphasised the government's commitment to fiscal responsibility: "It cannot be right that £1 in every £10 we spend goes on debt interest – which could be better spent on our nurses, police officers and teachers - that's why we're tackling it. We are stabilising the economy, reducing borrowing, rooting out waste in the public sector and making sure that public services deliver value for taxpayers' money."
The borrowing figures are closely monitored by financial markets as they indicate how much the government needs to borrow to finance its spending plans and whether it remains within annual targets. The December improvement suggests some fiscal headroom, though the substantial debt interest burden continues to constrain public spending options.
