As the UK government grapples with balancing its books, the topic of public borrowing has taken centre stage. Marcus Williams, a financial expert at The Update Desk, delves into the intricacies of the government’s borrowing practices and their broader implications.
The UK government’s primary source of income is taxation, with workers paying income tax and National Insurance, consumers contributing through VAT, and companies remitting profits tax. However, the government’s spending often exceeds its revenue, leading to a gap that must be filled.
To bridge this gap, the government has several options: raising taxes, cutting spending, or borrowing money. Increasing taxes can have a dampening effect on the economy, as consumers have less disposable income and businesses generate lower profits, resulting in reduced tax revenue. As a result, the government often turns to borrowing to stimulate the economy and fund major projects, such as new infrastructure.
The government borrows by issuing financial instruments called bonds, or “gilts” in the UK context. These bonds are essentially a promise to repay the borrowed money in the future, with regular interest payments. Gilts are primarily purchased by financial institutions, both domestic and international, including pension funds, investment funds, banks, and insurance companies.
The latest data from the Office for National Statistics (ONS) shows that government borrowing in December 2025 stood at £11.6bn, a 38% decrease from the previous December. However, the government’s borrowing fluctuates throughout the year, with lower figures typically seen in January when many individuals pay a significant portion of their annual tax bill.
The total amount the government owes is known as the national debt, which currently stands at around £2.9 trillion, roughly equivalent to the UK’s annual gross domestic product (GDP). This level is more than double the debt seen from the 1980s through the 2008 financial crisis, largely due to the impact of the financial crash and the COVID-19 pandemic.
While the current debt figures are high, they are still relatively low compared to much of the last century and are also lower than the equivalent figures for some other leading economies. Nonetheless, the larger the national debt, the more interest the government must pay, a cost that has become more noticeable as the Bank of England has raised interest rates in recent years.
The government’s borrowing and interest payments have sparked debates among economists. Some fear the government is borrowing too much at too great a cost, potentially diverting funds from public services. Others argue that additional borrowing can help the economy grow faster, generating more tax revenue in the long run.
In response to the concerns, the government has adjusted its fiscal targets, with Chancellor Rachel Reeves changing the definition of the debt measure used in the target to enable more borrowing for investment. The government has reiterated its commitment to economic stability, stating that meeting its fiscal rules is non-negotiable.
As the UK navigates the complexities of public finance, the government’s borrowing practices will continue to be a topic of intense scrutiny and debate, with policymakers seeking to strike a balance between supporting economic growth and maintaining fiscal discipline.
