22nd January 2026
Have the public finances taken a decisive turn (for the better)?
- Figures for the public finances showed that government borrowing (PSNBx) totalled £11.6bn December. Consensus forecasts had centred on a deficit of £13.0bn, while we had £16.6bn. Borrowing in December 2025 was a huge £7.1bn lower than in December 2024. The key driver was robust tax receipts which were 8.9% higher than a year ago. Inflows of corporation tax, income tax and National Insurance Contributions were notably buoyant, with the latter supported by the increase in the employers’ rate in last April. By contrast total central government current spending was just 3.5% above year ago levels. Net revisions to previous data for earlier months this financial year were downwards to the tune of £3.5bn.
- The deficit has now fallen on a year-on-year basis for five of the last six months. Moreover using the PSNBx measure, over the first nine months of the financial year so far the government borrowed marginally less than over the equivalent period in 2024/25. Together this provides convincing evidence that the deficit will drop below last year’s estimated total of £152.3bn, interrupting a trend of three straight years in which borrowing has risen. Borrowing must now fall at a pace of some £4.5bn per month below year ago levels to match the OBR’s full fiscal year Budget forecast of £138.3bn. We would not claim to be confident over such an outturn, but after today’s figures it is certainly possible.
- In summary, these figures are encouraging. The likelihood is that the Chancellor will probably be able to claim that the public finances are broadly on track when she delivers her Spring Statement on 3 March. And it is very early days to be drawing firm conclusions, but in the absence of further major government U-turns on public spending, there seems to be a good chance that she will be able to avoid another set of tax increases at the Budget towards the end of the year.
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