The UK budget deficit declined

Photo: Unsplash

UK government borrowing fell in November, offering the first improvement in public finances since the new budget was unveiled. The data provided a modest boost for Chancellor Rachel Reeves as she seeks to restore fiscal credibility following a politically difficult tax-raising package.

Lowest November borrowing since 2021

According to the Office for National Statistics, public sector net borrowing stood at £11.7 billion in November, £1.9 billion less than a year earlier. This marked the lowest November deficit since 2021, although borrowing exceeded the median economist forecast of £10 billion. The improvement was driven by strong tax receipts and lower debt-interest costs.

Tax revenues offset spending pressures

Tax receipts rose 6.7% year-on-year in November, supported by a £4.2 billion increase in income tax and national insurance contributions. Higher employer payroll taxes, elevated inflation and robust wage growth helped lift revenues, partly offsetting pressures from welfare spending, debt interest and higher costs associated with supporting children with special educational needs.

Borrowing still higher over the year

Despite the monthly improvement, borrowing in the first eight months of the fiscal year reached £132.3 billion, £10 billion more than in the same period last year. The deficit for April to October was revised higher due to weaker-than-expected corporation tax receipts and higher winter fuel payments following a reversal of planned cuts to pensioner benefits.

Public sector net debt stood at 95.6% of GDP, the highest level since the early 1960s.

Debt interest costs ease

A slight fall in retail price inflation between August and September helped reduce debt interest spending in November by £200 million compared with a year earlier, bringing it down to £3.4 billion. This was the lowest November figure since 2019 and the lowest monthly cost since March 2024.

Budget strategy and record tax burden

To reassure financial markets and strengthen compliance with fiscal rules, Reeves raised taxes by £26 billion in her November budget. As a result, the UK tax burden has climbed to a postwar record of 38% of GDP. The Office for Budget Responsibility now expects borrowing in 2025-26 to reach £138.3 billion, nearly £21 billion higher than projected in March.

Sharp fiscal consolidation ahead

The OBR forecasts that borrowing will fall from 4.5% of GDP this year to just 1.9% by the end of the decade. Economists say this implies one of the most ambitious deficit-reduction plans among major advanced economies.

As International Investment experts report, November’s fall in borrowing offers limited reassurance. While lower debt costs and strong tax receipts provide short-term relief, the UK’s fiscal outlook remains constrained by high debt levels and record taxation, leaving economic growth as the key determinant of long-term sustainability.