- The UK government borrowed 1.8 billion pounds in July 2026, defying expectations of a surplus.
- Total national debt has reached 2.98 trillion pounds, representing approximately ninety-four percent of GDP.
- Record self-assessment tax payments failed to offset rising social benefit costs and higher spending.
The government borrowed £1.8 billion in July, overturning expectations of a surplus and tightening pressure on ministers before the October Budget.
The deficit was £700 million higher than in July 2025. The Office for Budget Responsibility had forecast a £500 million surplus, while analysts expected the month’s accounts to balance.
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The figures, published on August 20, 2026, showed that stronger income tax payments failed to keep the government in surplus. They also showed borrowing for the financial year to July running above the official forecast.
The latest numbers narrowed the Chancellor’s room for manoeuvre. The government must decide how to meet its fiscal rules while facing higher spending and rising debt-servicing costs.
HMRC collected £322.7 billion in total tax receipts from April to July 2026. That was £19.1 billion more than during the same four months a year earlier.
Borrowing for the financial year to July nevertheless reached £56.7 billion. The total stood £2.3 billion above the OBR forecast.
The October 28 Budget now has less room for error
Chancellor John Healey will deliver the Budget on October 28, 2026. The figures leave the government confronting an early warning that higher receipts alone may not provide enough fiscal headroom.
The current budget deficit for April to July stood at £34.7 billion. Under the government’s fiscal rules, day-to-day spending must balance against tax revenues by 2029/30.
July normally benefits from self-assessment payments. This year, those payments reached a record level for the month, but the extra income did not cover faster growth in expenditure.
The Office for National Statistics said spending growth outpaced receipts despite the strong self-assessed income tax result. The figures have intensified calls for either additional revenue measures or tighter spending plans.
Strong tax payments could not offset faster spending growth
The main July tax flows were concentrated in income and asset-related receipts.
| Measure | July 2026 amount or change |
|---|---|
| Self-assessment income tax | £17.1 billion |
| Increase from July 2025 | £1.7 billion, or 11% |
| Inheritance Tax | £868 million |
| Inheritance Tax collected since April | £3.2bn |
| Capital Gains Tax | £194 million |
| Year-on-year increase in social benefits spending | £2 billion |
| Increase in goods and services spending | £1.2 billion |
Self-assessment income tax brought in £17.1 billion during July, up £1.7 billion from a year earlier. It was the highest July level on record.
Inheritance Tax contributed £868 million. Since April, the total has reached £3.2bn. Capital Gains Tax added £194 million.
Spending moved higher at the same time. Central government expenditure on social benefits rose by £2 billion year on year in July.
Goods and services spending increased by £1.2 billion. That category includes public sector staff costs.
Debt costs are adding another pressure point
The government’s broader debt position is also constraining its options. Total national debt stands at £2.98 trillion, equal to approximately 94.1% of GDP.
Bond yields have risen amid concerns about inflation and energy prices. Thirty-year UK gilt yields neared 5.85%, the highest level since 1998.
Martin Beck, chief economist at WPI Strategy, said higher yields would feed into government costs as existing debt comes up for refinancing.
"Ten-year gilt yields are above 5%, reflecting energy-related inflation concerns. these will gradually feed through into a larger debt-interest bill as existing debt is refinanced."
The conflict in Iran, which began earlier in 2026, has produced an energy price shock and added to economic volatility.
Thomas Pugh, chief economist at RSM, said the combination of borrowing costs, inflation and spending could keep the deficit above the government’s earlier path.
"Higher gilt yields, stubborn inflation, and a government determined to spend more means borrowing is on course to remain above 4% of GDP this year, instead of falling to 3.6% as projected."
Economists see spending and inflation keeping borrowing elevated
Dennis Tatarkov, senior economist at KPMG UK, pointed to support measures as another near-term pressure on the accounts.
"Short-term measures addressing the cost of living and state support following the energy price shock from the Iran conflict are likely to keep near-term borrowing elevated."
Economists have also argued that the commitment to the fiscal rules makes further tax rises inevitable in the October Budget. Higher government borrowing costs could increase pressure on departments if ministers seek to avoid raising revenue.
Healey has said the government is focusing support on getting young people into work despite the fiscal constraints. That approach will compete with demands for help with living costs and energy prices.
Healey says fiscal rules will guide the next decisions
Healey defended the government’s fiscal approach and said it retained a buffer against wider economic risks.
"Fiscal discipline is the bedrock of our UK economic stability and national security, which is why we are committed to meeting our fiscal rules, with a buffer against global uncertainties. We are cutting the deficit faster than any other G7 economy while giving people a bit of breathing space."
Mel Stride, the shadow chancellor, said the government’s plans would increase borrowing.
"We simply cannot afford the price of Labour. They already plan to borrow over a quarter of a trillion pounds more than the [forecasts]."
The next test comes with the October 28 Budget. Ministers must set out how they will keep day-to-day spending aligned with tax revenues by 2029/30 while dealing with elevated borrowing costs and pressure from the energy shock.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
