After the UK labour market and inflation releases then people are likely to have been nervous about today’s public finances numbers. Higher public-sector wage growth and a rise in inflation set a worrying back drop. But it turns out that a version of the improbability drive from the Hitchhikers Guide to the Galaxy had been engaged.
Borrowing – the difference between total public sector spending and income – was £11.6 billion in December 2025; this was £7.1 billion or 38.0% less than December 2024 and the 10th highest December since monthly records began in 1993 (not adjusted for inflation).
As you can see it was quite an improvement on last year which is both welcome and rather different to the numbers that we had become used to. Also we had a following wind as the past has been better than we thought it was.
Since publishing our Public sector finances, UK: November 2025 bulletin, we have reduced our estimate of public sector net borrowing (PSNB ex) in the first eight months of the financial year by £3.5 billion to £128.8 billion.
There is a cautionary tale in there about the accuracy and reliability of these figures. But as better news is not that common in this area the breakdown was welcome as well.
This reduction was largely because of an increase to our previous estimate of central government tax receipts of £3.5 billion. Most notably, there was an increase of £1.9 billion to our previous estimate of corporation tax receipts because of updated cash data.
Those who measure economic strength via tax receipts will be pleased by that and it is a hopeful signal. However in a return to my post last Friday about the reliability of official statistics the fact they did not know the cash numbers for Corporation Tax would be shocking if we had not seen that before.
The overall effect is that the picture for the fiscal year so far has seen a considerable improvement this morning.
Borrowing in the financial year to December 2025 was £140.4 billion; this was £0.3 billion or 0.2% less than in the same nine-month period of 2024, but still the third-highest April to December borrowing on record (not adjusted for inflation), after those of 2020 and 2024.
Although the cautionary note is shown below by the amount we are still borrowing in relative terms.
Borrowing in the financial year to December 2025 was provisionally estimated at 4.6% of gross domestic product (GDP); this was 0.2 percentage points less than in the same nine-month period of 2024.
So whilst the better news today is welcome the strategic issue is only improved at the margin.
What happened in December?
There was welcome news on taxes and receipts.
Central government’s current receipts were £94.0 billion in December 2025, which is £7.7 billion or 8.9% more than in December 2024.
Some of that is less welcome than other parts as we noted earlier this week when we looked at the decline in payroll employment.
compulsory social contributions increased by £3.0 billion to £18.4 billion, as changes to the rate of National Insurance contributions paid by employers came into effect on 6 April 2025.
But the rises below are more welcome.
central government tax receipts increased by £4.6 billion to £70.0 billion; this included increases of £2.5 billion in Income Tax receipts (including PAYE and self-assessed income tax), £0.8 billion in Corporation Tax receipts and £0.6 billion in Value Added Tax (VAT) receipts.
There is an undercut in that part of the Income Tax increase was as a result of non adjusting thresholds for inflation. But there also seems to be a broad based rise in taxes suggesting some hope for economic activity.
Expenditure
There was relatively welcome news here too.
Central government’s current expenditure was provisionally estimated as £92.9 billion in December 2025, which is £3.2 billion or 3.5% more than in December 2024.
That is similar to the inflation rate and indeed one large lump was driven by it.
net social benefits paid by central government increased by £2.1 billion to £28.1 billion; this was largely caused by inflation-linked increases in many benefits and earnings-linked increases to state pension payments.
Also the large public-sector pay rises are not having too much impact here.
central government departmental spending on goods and services increased by £2.3 billion to £39.3 billion, as pay rises and inflation increased running costs.
Maybe as I pointed out on Tuesday there is another problem with official data ( a lower index number was reported as an over 7% rise after seasonal adjustment).
Also we saw an outright benefit from no longer being a member of the European Union.
current grants paid to the rest of the world decreased by £1.3 billion to £0.5 billion, reflecting both a reduction in payments to the EU and a change in the monthly pattern of ongoing payments.
Debt Interest
Due to the structure of payments December is a higher month than typical.
Central government debt interest payable in December 2025 was £9.1 billion, £0.2 billion more than in December last year.
There was an improvement via inflation being lower than last year..
The £9.1 billion interest payable on central government debt in December 2025 includes a capital uplift of £2.6 billion. This largely reflects the 0.3% increase in the RPI between September and October 2025.
But the £700 million improvement there was offset by the reality that basic debt costs rise because we keep adding to the debt and thus have to pay interest on that extra debt. This year debt on conventional debt was £6.4 billion or £800 million more than December 2024.
National Debt
In relative terms it looks like this.
The net debt-to-GDP ratio at the end of December 2025 was provisionally estimated at 95.5%, which is 0.9 percentage points more than a year ago. However, this is a highly provisional estimate.
Then our official statisticians have decided we have more assets than liabilities.
These extra financial assets are currently valued at more than the extra financial liabilities. This means that at 85.0% of GDP, PSNFL ex was 10.5 percentage points of GDP less than PSND ex at the end of December 2025.
Best of luck with that! Or rather it is what is not included that raises a smile.
This broader statistic also captures a wider range of financial liabilities, such as liabilities for public sector funded pensions
So not unfunded pension liabilities then…
Comment
These are much more welcome numbers for the public finances than the months that have preceded this one. For a genuine improvement we need a sequence of them and with a government that keeps announcing more spending commitments that is going to be difficult.
The Warm Homes Plan will deliver £15 billion of public investment to upgrade up to 5 million homes and lift up to a million families out of fuel poverty by 2030. (Gov.uk)
Also there is the issue of quality of the work. Here is the National Audit Office showing what happened under a previous plan.
98% of homes with external wall insulation have major issues requiring remediation (between 22,000 and 23,000 homes)…..29% of homes with internal wall insulation have major issues requiring remediation (between 9,000 and 13,000 homes)
Oh and I have not forgotten the first rule of OBR Club that the OBR is always wrong.
This is £0.3 billion below the same period last year and £4.1 billion below the monthly profile consistent with our November forecast.
Quite an error considering it was made only a month before.
