UK public borrowing has fallen by about £19.8bn over the past year, the Treasury said — but ministers warned the war centred on Iran could push costs back up. The department said the drop, driven by higher receipts, lower day‑to‑day departmental spending and energy measures including one‑off receipts, narrows the deficit and eases short‑term pressure on gilt markets and the government's interest bill.

What the figures show

Treasury data released on Thursday put annual borrowing down roughly £19.8bn year‑on‑year. The decline represents the difference between the public sector's receipts and outlays over the past 12 months and marks a clear fall from levels seen during the pandemic and immediate recovery.

The shift narrows the government's headline deficit and reduces the flow of new debt issuance required to finance public spending, easing short‑term pressure on gilt markets and the government's interest bill.

Officials said the drop reflects a mix of factors:

  • higher receipts;
  • lower day‑to‑day departmental spending;
  • energy policy changes and one‑off receipts.

Why ministers say borrowing fell

Chief Secretary to the Treasury James Murray framed the figures as evidence that ministers' fiscal choices are bearing fruit.

Mastheads

"Our deficit is down £19.8bn because of our plan to cut borrowing," Mr Murray said, adding that the government had acted to keep costs down and to take back energy security.

The Treasury points to tighter control of departmental budgets, targeted supply‑side policies, reduced emergency pandemic spending and some one‑off receipts as contributors. Economists cautioned that this is one piece of the fiscal picture and noted other indicators — such as inflation, wage growth and Bank of England signals — remain important.

How the Iran war changes the outlook

The government's upbeat fiscal message was tempered by warnings about international developments. The conflict centred on Iran and the wider Middle East raises the prospect of higher energy prices and shipping disruptions.

Possible channels for fiscal impact include:

  • higher oil and gas prices leading to larger energy subsidies or relief for households and firms;
  • higher insurance and freight costs feeding into consumer prices;
  • renewed inflationary pressure that could prompt the Bank of England to keep interest rates higher for longer, increasing the government's borrowing costs.

Officials said ministers are making decisions with a volatile world in mind and would act to protect the public finances if needed, though no specific contingency spending plans were set out.

Political and economic implications

Domestically, the numbers give the Treasury breathing space. A falling deficit strengthens fiscal credibility, reduces the immediate need for new austerity measures or sharp tax rises, and gives ministers more room to prioritise spending ahead of forthcoming fiscal events.

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"Our deficit is down £19.8bn because of our plan to cut borrowing," James Murray, Chief Secretary to the Treasury, said.

This article was created with AI assistance.