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Higher tax receipts were not enough to prevent a UK government deficit in July
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Britain collected more tax in July. So why did the government still run a deficit?
Aug 21, 2026
- The government collected £17.1 billion in self-assessment tax in July.
- Public sector borrowing still reached £1.8 billion, against expectations of a balanced month.
- Total government debt has climbed to almost £3 trillion, adding pressure ahead of the October Budget.
Britain collected £17.1 billion in self-assessment tax in July, £1.7 billion more than a year earlier. Yet the government still ended the month with a £1.8 billion deficit, raising fresh questions about how much room chancellor John Healey will have when he delivers his first Budget on October 28.
July is normally one of the better months for the public finances because self-assessment tax payments give Treasury receipts a seasonal boost. Economists had expected the government's finances to be roughly balanced. Instead, spending grew faster than income.
The result means government borrowing was £2.3 billion higher than the Office for Budget Responsibility forecast for the month and £700 million higher than in July last year.
More tax came in, but spending grew faster
The main problem was not a collapse in tax receipts. The government actually collected more.
Instead, several areas of spending increased sharply. Central government spending on social benefits was £2 billion higher than a year earlier, while spending on goods and services, including staff costs, rose by £1.2 billion.
That pushed total borrowing for the first four months of the 2026-27 financial year to £56.7 billion.
The figure is lower than the same period last year, but it is still £2.3 billion above the OBR's forecast, leaving Healey with less room for manoeuvre than planned.
The pressure is not limited to the monthly borrowing figure.
Government debt reached £2.98 trillion in July, equivalent to about 94 per cent of GDP, and was £96 billion higher than a year earlier.
At the same time, borrowing costs are becoming another problem. Ten-year gilt yields have moved above 5 per cent, meaning the government could face higher debt-interest costs as existing borrowing is refinanced.
That matters because even relatively small changes in borrowing costs can become expensive when the debt pile is close to £3 trillion.
Healey faces a tighter Budget
The latest figures arrive at an awkward time for Healey.
When Rachel Reeves delivered her spring statement in March, the government had a £23.6 billion buffer against its fiscal rules. Analysts now expect higher inflation, weaker growth and rising borrowing costs to have eaten into some of that headroom.
Healey has also inherited pressure to increase spending in areas including defence, housing, infrastructure and public services.
He said fiscal discipline remained central to the government's economic plans and that it was committed to meeting its fiscal rules while maintaining a buffer against global uncertainty.
There was some better news elsewhere in the economy. UK consumer confidence rose unexpectedly to a two-year high in August, although retail sales fell 0.5 per cent in July.
That leaves Healey facing a difficult balance before October 28: keep borrowing under control while dealing with rising spending demands and an economy that is showing some signs of resilience but remains uneven.
For the Treasury, July's numbers deliver an uncomfortable message — even a strong month for tax receipts is no guarantee of a balanced budget when spending is rising faster.
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