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The UK borrowed £11.6 billion less than expected in December, boosted by rising tax revenues, in a boost to Chancellor Rachel Reeves.
The gap between government income and spending was less than the £13 billion forecast by economists polled by Reuters and 38 percent less than the same month a year earlier.
Thursday’s data from the Office for National Statistics comes after Reeves proposed raising taxes again in his November budget, in order to increase the buffer to meet his fiscal rules.
“Public finances are finally showing signs of improvement in recent months,” said Ruth Gregory, economist at consultancy Capital Economics.
However, he warned that the pace of deficit reduction remains “very slow” and that the political vulnerability of Reeves and Prime Minister Sir Keir Starmer “raises doubts about whether the planned fiscal tightening will be achieved in future years”.
For the first nine months of the financial year, which began in April, borrowing was £140.4 billion, £0.3 billion less than the same period in the previous financial year.
“As a result of the strong increase in receipts compared with last year, borrowing in December was significantly down on the same month in 2024, while spending is only marginally higher,” said Tom Davies, senior ONS statistician.
“However, borrowing in the first nine months of the entire financial year was marginally lower than the same period in 2024,” he said.
The ONS said tax receipts and national insurance contributions rose by almost 10 per cent in December compared with a year earlier and were the highest in any December on record. However, the cost of public services, benefits and debt interest have all increased compared to December 2024.
In the first nine months of the financial year, government receipts were 7.6 per cent higher than the same period last year, following changes to the rate of NI contributions paid by employers which came into effect in April last year.
Joe Nellis, economic adviser at accountancy firm MHA, said: “Borrowing remains high in absolute terms, but the trend is moving in the right direction.”
Slower inflation and slowing income growth are beginning to ease pressure on public sector spending, while the economy has shown temporary signs of resilience, he said.
The UK fiscal regulator, the Office for Budget Responsibility, in November raised its estimate of government borrowing for the current financial year to £138bn, up £21bn from its previous estimate last March, due to higher public spending.
Gregory argued that to meet the OBR’s 2025-26 forecast, borrowing in the remaining three months of this financial year would need to be £13.5 billion less than last year.
One of Reeves’ fiscal rules requires him to finance day-to-day spending, or the current budget, with taxes until the end of the Parliament.
The ONS reported that the current budget deficit stood at £5.8 billion last month and £94.9 billion in the financial year to December. The latter is £1.6 billion less than the same nine-month period in 2024.
Responding to the figures, James Murray, Chief Secretary to the Treasury, said: “Last year we doubled our headroom and we are forecast to cut borrowing by more than any other G7 country.”
