The monthly public sector finances published by the Office for National Statistics (ONS) on Thursday 22 January 2026 reported a provisional shortfall between receipts and public spending of £12bn in December 2025, resulting in a cumulative deficit for the nine months of £140bn. 

Martin Wheatcroft, External Advisor on Public Finances to ICAEW, said: “Not much happened in public finances for December. The monthly deficit of £12bn was in line with budget for the first time this financial year, while revisions to previous months reduced the year-to-date budget overrun by £3bn to £13bn.

“With a £9bn budgeted surplus for the final quarter of the financial year to March 2026, this puts the deficit on track to come in below the OBR’s latest full-year forecast of £138bn,” he continued. “The main uncertainties for the rest of the financial year are the level of income tax self-assessment receipts in January and the year-end capital expenditure rush in March.”

Month of December 2025

The shortfall between receipts of £103bn and public spending of £115bn amounted to £12bn in the month of December, in line with budget. This was £7bn less than the £19bn deficit incurred in December last year (£95bn receipts less £114bn spending).

Public spending in the month can be analysed between current spending of £109bn, slightly higher than the £107bn monthly average incurred during the first eight months of the financial year, and net investment of £6bn, £1bn more than the £5bn monthly average between April and November 2025.

Public sector net debt increased by £11bn during December 2025 from £2,925bn on 30 November to £2,936bn on 31 December. This reflected the £12bn needed to fund the deficit in the month less a £1bn positive cash flow from working capital movements and lending activities.

Nine months to December 2025

The provisional deficit for the first three quarters of the financial year of £140bn was £1bn more than in the same nine months last year and £13bn more than the £127bn budgeted at the start of the year. 

The year-to-date budget overrun of £13bn can be analysed as an £18bn overrun on the current budget deficit less a £5bn underspend on net investment.

Table 1 highlights how year-to-date receipts of £872bn were 8% higher than the same period last year.

• Income tax receipts were up 8% from a combination of inflation and fiscal drag from frozen tax allowances.
• National insurance receipts were up 18%, reflecting the increase in employer national insurance from April 2025 onwards.
• VAT receipts were up 4%, slightly ahead of consumer price inflation.

The 6% increase over last year in current spending to £967bn in the first three quarters of the financial year has principally been driven by public sector pay rises, higher supplier costs, the uprating of welfare benefits, and higher debt interest. 

Cumulative debt interest of £106bn was £7bn or 7% higher than for the first nine months of 2024/25, comprising a £6bn increase in indexation on inflation-linked debt as inflation rose again in 2025 and a £1bn increase in interest on variable and fixed-interest debt. The latter reflects a higher level of debt compared with a year ago offset by a lower Bank of England base rate.

Net investment of £45bn in the first nine months of 2025/26 was £1bn more than in the same period last year. This comprised capital expenditure of £75bn (up by £5bn from the first three quarters of the previous year) and capital transfers (capital grants, research and development funding, student loan write-offs) of £24bn (down £1bn) less depreciation of £54bn (up £3bn).

Budget for the rest of the financial year

The budgeted deficit for the full year ending 31 March 2026 of £118bn comprises £127bn in the first three quarters of the financial year offset by a net surplus of £9bn in the remaining three months. The latter comprises a budgeted surplus of £23bn for January less deficits of £1bn and £13bn for February and March 2026 respectively.

If the remaining three months were in line with budget, then the full year deficit would be £131bn, which is lower than OBR’s Autumn Budget estimate for a full-year deficit in 2025/26 of £138bn.

Borrowing and debt

Table 2 summarises how the government borrowed £131bn in the first three quarters of the financial year to take public-sector net debt to a provisional £2,936bn on 31 December 2025. 

The movement comprised £140bn in public-sector net borrowing (PSNB) to fund the deficit less a £9bn net inflow from working capital movements and government lending.

The ratio of public sector net debt to GDP increased by 2.3 percentage points from 93.2% of GDP at the start of the financial year to 95.5% on 31 December 2025, once 2.1 percentage points of ‘inflating away’ caused by inflation and economic growth adding to GDP (the denominator in the ratio) is taken account of.

Public sector net debt on 31 December 2025 of £2,936bn comprised gross debt of £3,416bn less cash and other liquid financial assets of £480bn. 

Public sector net financial liabilities were £2,613bn, being public sector net debt plus other financial liabilities of £726bn less illiquid financial assets of £1,049bn. Reported public sector negative net worth was £745bn, being net financial liabilities less non-financial assets of £1,868bn, although this is understated as it excludes in excess of a trillion pounds in unfunded employee pension obligations.

Revisions

Caution is needed with respect to the numbers published by the ONS, which are repeatedly revised as estimates are refined and gaps in the underlying data are filled. This includes local government where the numbers are only updated in arrears and are based on budget or high-level estimates in the absence of monthly data collection.

This month the ONS revised the deficit for the eight months to November 2025 down by £3bn to £129bn and revised GDP estimates up slightly, reducing the opening net debt/GDP ratio by 0.1 percentage point.

For further information, read the public sector finances release for December 2025.