UK government borrowing fell sharply in December, according to new figures from the Office for National Statistics (ONS). Borrowing came in at £11.6bn, which is £7.1bn (38%) lower than the same month last year. The drop was mainly driven by a strong rise in tax and National Insurance Contributions (NIC) receipts, which more than offset higher public spending.
Even with that improvement, borrowing is still higher than December 2023 (when it was £8.1bn) and December 2025 is still among the highest Decembers on record.
What the figures actually mean
Borrowing is the gap between what the government spends and what it collects in tax. In December:
Tax and NIC receipts rose by £7.7bn (8.9%) versus December 2024
The ONS said this increase included income tax, corporation tax, VAT, and NIC
Public spending also rose, provisionally estimated at £92.9bn, up £3.2bn (3.5%) year on year
The spending rise was partly linked to inflation-linked benefits
ONS commentary pointed to a simple story: receipts were up strongly, while spending was only modestly higher.
Why tax receipts are rising
Two drivers stood out:
1) Changes to employer NIC
The ONS notes that changes to the employer NIC rate took effect in April last year, which has supported higher NIC receipts.
2) Fiscal drag from frozen income tax thresholds
With income tax thresholds frozen, wage growth pushes more people into paying tax, or paying more tax, without any headline rate change. This is known as fiscal drag.
For households, it can feel like a stealth squeeze. For employers, it can add cost pressure through NIC, depending on payroll changes and hiring plans.
The year-to-date position
For the financial year so far (April to December), borrowing was provisionally estimated at:
£140.4bn, around £300m lower than the same period in 2024
4.6% of GDP, down 0.2 percentage points year on year
Still the third-highest April to December borrowing on record, after 2020 and 2024
The Office for Budget Responsibility (OBR) said borrowing over April to December was £4.1bn (2.8%) below its current forecast.
Capital gains tax and the January effect
The OBR’s assumptions for the final part of the financial year include a big January factor: it expects a 50% rise in capital gains tax receipts in January compared with January 2025. The logic is that some people may sell assets earlier to lock in lower CGT rates ahead of anticipated changes.
Economists quoted in the coverage suggest January could also bring a strong self-assessment month, but they also note that deficit reduction remains slow overall.
What this means for you
If you are a business owner:
Expect ongoing attention on tax compliance and receipts. That usually means less tolerance for late filing, late payment, or poor records.
Employer NIC changes matter. Review payroll costs and any planned hiring, pay rises, or benefits.
If you are an employee or self-employed:
Frozen thresholds mean pay rises can push you into higher effective tax. Do not assume a raise means a similar rise in take-home.
If you have assets and are considering a disposal, keep CGT planning on the radar. Timing can materially change the tax outcome.
Disclaimer: This article is for general information only and does not constitute tax, legal, or financial advice. Tax rules can change and outcomes depend on individual circumstances. If you need advice, speak to a qualified accountant or tax adviser.