UK borrowing slows in July

July borrowing fell to a three year low as tax and National Insurance receipts rose, but the budget outlook remains constrained.

UK borrowing slows in July as receipts rise

Official data from the Office for National Statistics shows borrowing over the first four months of the financial year totalled £60bn, up £6.7bn from a year earlier. Borrowing in July was lower, helped by the timing of income tax receipts. Self assessment payments brought in £15.5bn in July, up £2.7bn on a year earlier, and National Insurance contributions rose after the April rate increase. The ONS notes that the four month total is in line with the forecast published by the independent Office for Budget Responsibility in March.

Economists caution that July’s improvement does not remove the larger budget challenge. Paul Dales of Capital Economics told the BBC that Reeves is likely to miss her fiscal rule by around £17bn, meaning she may need to raise that amount, or around £27bn if she wants to keep a similar buffer as in March. There is talk that the freeze on income tax thresholds, due to end in 2028, could be extended. Some reports also suggest Reeves is weighing reforms to property taxes. The data provide a partial relief, but the policy path remains unsettled.

July’s numbers offer a brief, hopeful blink but no lasting relief from the deficit. The month shows stronger receipts at the top of the tax system and a higher NI intake, yet the underlying borrowing path still points to a sizable annual gap. The political and economic implications are clear: the Budget will need serious revenue-raising or spending restraint measures, and that will test public patience as much as markets. The debate over extending the tax threshold freeze or reforming property taxes could trigger backlash if it feels like a shift toward higher taxes, even as officials argue changes are necessary for credibility.

Highlights

The budget path will be tested by choices as much as numbers.