Government can take credit for reducing borrowing last year but impacts of Middle East conflict present a further risk to public finances

The UK borrowed £132 billion in the past financial year (2025-26), £20 billion below the £152 billion in borrowed in 2024-25, and £0.7 billion below the OBR’s March forecast. But conflict in the Middle East risks putting the brakes on the slow consolidation in the public finances apparent in today’s figures, the Resolution Foundation said today (Thursday).

The fall in borrowing mainly reflected higher tax receipts. Central government receipts were £1,121.5 billion in 2025-26 a rise of £87 billion from 2024-25. Meanwhile, central government spending in 2025-26 came in at £1,246 billion, close to the OBR’s November forecast (of £1,254 billion) but £58 billion above the 2024-25 total.

But risks lie ahead, with the economic fallout from the ongoing war in the Middle East – on top of any government response to rising energy prices – yet to appear in the data. Recent weeks have seen the yield on 10-year bonds rise to around 4.9 per cent, a larger increase than in any G7 country bar Italy. This will raise the costs of servicing government debt which was 93.8 per cent of GDP at the end of 2025-26.

A severe but plausible scenario in which the worst of recent falls in asset prices are sustained and UK GDP is 0.9 per cent lower in three years’ time would knock around £16 billion off the Chancellor’s £24 billion headroom. This scenario illustrates the importance of raising these fiscal buffers at the Budget last year.

Elliott Christensen, Senior Economist at the Resolution Foundation, said:

“The Government can take credit for reducing borrowing in the past financial year as higher tax receipts more than offset an increase in spending.

“Today’s release gives a final snapshot of government spending and borrowing before the economic effects the war in the Middle East take hold. Government borrowing costs have risen, with the public finances likely to be weaker in the medium term because of the conflict.

“The Chancellor should ensure any energy bill support is targeted and time-limited and make sure she stays within her fiscal rules given the risks to the public finances.