UK government borrowing fell to £11.6 billion in December, below £13 billion forecast

Borrowing by the UK government fell to £11.6 billion in December, a notable improvement compared with the previous year and well below economists’ expectations. Higher tax income helped reduce the budget gap despite rising national expenditure and substantial interest payments on existing debt.

Published data from the Office for National Statistics indicates public sector net borrowing dropped £7.1 billion below the level seen in December of the previous year. This outcome came in below the economists’ £13 billion projection, showing that government revenue growth outpaced expenditure during the period. 

Higher tax income helped the government borrow less money in December

High tax collections reduced government borrowing in December. Because revenues climbed quickly, while expenditures grew more slowly, the need to finance routine operations decreased. The upturn in income provided temporary relief to the budget totals. Despite this, spending demands showed little sign of easing.

In December, government revenue climbed to £94 billion, an increase of £7.7 billion versus the previous year’s figure, official statistics from the Office for National Statistics show. Higher inflows led to a notable increase in funds collected over that period. The surplus between earnings and outlays grew larger than the year before. 

Revenue growth came mainly from key tax sources. Due to sustained wage levels and a broader base of earners facing elevated brackets, income tax collections expanded.

Higher employer national insurance rates, effective at the start of the year, also gradually increased monthly inflows. Value-added tax improved steadily alongside stronger corporate profits, boosting corporate tax receipts.

Spending, by contrast, grew at a much slower pace. In December, public sector spending reached £92.9 billion, rising just £3.2 billion from the previous year; a modest climb when set against stronger revenue gains. Because expenses did not keep pace with inflows, more funds remained outside spending channels.

Receipts rose strongly, according to the ONS, over the previous year, whereas spending increased slightly; this gap led to less need for government borrowing during the period. The budget deficit for routine public service costs amounted to £5.8 billion in December, down from the previous year.

High debt and interest costs kept pressure on public finances

Still, public debt shows no real shift despite less government borrowing in December. Years of substantial loans, combined with rising interest expenses, keep the totals elevated. A smaller deficit last month brought limited breathing room, but the reduction failed to make a lasting dent in accumulated debt.

By year-end, public sector net debt stood at 95.5% of GDP, according to official figures, levels not seen since the early 1960s. Despite shrinking monthly deficits, the burden remains steep relative to economic output. Though borrowing eases, overall debt levels remain elevated relative to national income.

Servicing that debt remains costly. During December, the state directed £9.1 billion toward interest on debts; a monthly outflow showing persistent demands on public funds. Lenders receive substantial portions of budget allocations simply to maintain current borrowing levels.

Although tied to inflation, most UK government bonds make debt interest unpredictable. When the Retail Prices Index changes, so do interest expenses. A minor rise or fall in prices may alter what the state pays each month, which introduces instability into budget planning.

When viewed across the full fiscal cycle, borrowing demands remain high. Over the initial nine months, state debt accumulation stood at £140.4 billion, just £300 million below the figure recorded a year earlier. That minor gap suggests minimal shift in borrowing totals for the period, despite gains in December. Though recent data improved, annual patterns show little movement.

Even in a monthly context, the improvement has limits. The borrowing figures in December were lower than a year earlier, but they still ranked among the 10 highest on record.

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