Source: ONSRelease: Public Sector Finances, UK: July 2026Period: July 2026 / FY to July 2026Released: 21 Aug 2026, 07:00 BSTBy: Damian Pudner
Borrowing overshoots the OBR again, and this time it's spending, not tax, doing the damage
The state borrowed £1.8bn in July, £2.3bn worse than the OBR's own forecast, even after the biggest July for self-assessment receipts on record. Receipts are broadly on profile. Spending isn't.
July Net Borrowing£1.8bnUp £0.7bn on July 2025 (+68.7%); £2.3bn above OBR forecast
FY-to-Date Borrowing£56.7bnDown £6.0bn (-9.6%) on last year; still £2.3bn above the OBR's March profile
Net Debt / GDP94.1%Down 0.8pp on July 2025 (94.9%); 0.3pp below the OBR's forecast
Key Points
July borrowing came in worse than the OBR expected, not better. Public sector net borrowing was £1.8bn, against an OBR forecast of a £0.5bn surplus for the month, a £2.3bn miss driven almost entirely by central government.
The cumulative picture confirms it's a spending problem. Central government receipts for the financial year to July are £2.8bn ahead of the OBR's March profile. Expenditure is £5.1bn ahead of it. Borrowing overshoots because Whitehall is spending faster than the OBR assumed, not because the tax take has disappointed.
Self-assessment had its best July on record and it still wasn't enough. SA income tax receipts hit £17.1bn, up £1.7bn on last year, yet still £0.4bn below what the OBR pencilled in for the month.
Debt interest is still hostage to RPI. Capital uplift on index-linked gilts added £1.3bn to July's interest bill alone. The UK's unusually large stock of index-linked debt leaves the exchequer more exposed than most advanced economies to inflation-driven swings in debt interest.
HMRC has changed the way provisional receipts are aligned with its accounting data. From August 2026, income tax, NICs and VAT receipts are being aligned monthly to HMRC's own accounting data rather than reconciled once a year. It's a legitimate data-quality upgrade, but it has already contributed to a £2.7bn downward revision to the FY-to-June borrowing estimate (about £2.0bn of that from higher aligned tax receipts) and revised FYE March 2026 borrowing up by £1.8bn. Year-on-year comparisons through this transition period want treating with more caution than usual.
The Numbers
Source: ONS, Public Sector Finances, UK: July 2026, Table 5.
Subsector Breakdown — July 2026 vs July 2025
Subsector
Jul 2026 (£bn)
Jul 2025 (£bn)
Change
Direction
Central government
6.4
5.2
+1.1
▲ Borrowing higher
Local government
-2.1
-1.7
-0.4
▼ Surplus wider
Public corporations
-2.4
-2.4
0.0
– Little changed
Public sector net borrowing
1.8
1.1
+0.7
▲ Borrowing higher
Source: ONS, Public Sector Finances, UK: July 2026, Table 1.
Commentary
Strip away the noise from self-assessment timing and the July figures tell a simple story. The tax side of the ledger is doing roughly what the OBR expected, and in places better. Central government receipts for the financial year to date are running £2.8bn ahead of the March profile, VAT is up 7.6% year-on-year, corporation tax up 13.0%. Whatever else is going wrong with the public finances, it isn't a shortfall in the tax take.
The overshoot is on the spending side, and it's now a persistent feature rather than a one-off. Central government expenditure for the financial year to July is £5.1bn above the OBR's forecast profile, against a receipts beat of only £2.8bn. Net social benefits are up 7.3% on the year, departmental spending on goods and services up 3.6%, transfers to local government up 4.3%. None of these are shocking numbers in isolation. Added together, month after month, they are the reason borrowing keeps landing above forecast even in months when the tax data reads well.
Debt interest remains the wild card. July's £1.3bn capital uplift on index-linked gilts is a reminder that a meaningful slice of the UK's £2.98 trillion debt stock still moves with RPI rather than a fixed coupon, a legacy of decades of unusually heavy index-linked issuance by international standards. It adds volatility to the monthly print that has nothing to do with the underlying fiscal stance, and it means the interest bill will keep surprising in both directions as RPI prints come and go.
Why It Matters
GBTT View
This is a spending story little more than two months before the 28 October Budget, and it hands the Chancellor very little room. The Chancellor now goes into that Budget with borrowing running £2.3bn above forecast for the year so far, and a spending base that keeps outrunning the OBR's forecast profile. None of this forces the Bank of England's hand directly, monetary policy responds to inflation and output, not the monthly borrowing print, but persistent fiscal slippage of this kind keeps gilt supply elevated and, all else equal, puts upward pressure on the term premium, which is precisely the channel through which loose fiscal policy ultimately feeds back into the cost of servicing the debt. The market's read on 28 October will turn less on whether the Chancellor finds new revenue than on whether departmental spending discipline is credible for more than one quarter at a time.
What To Watch
Households
The Great British Summer Savings scheme cuts VAT from 20% to 5% on qualifying family activities and children's meals from 25 July to 1 September. It temporarily depresses VAT receipts (the government costs it at around £300m); that effect reverses once the relief expires.
The Treasury
28 October is now the date that matters. An OBR forecast round against a backdrop of above-profile spending raises, not lowers, the odds of further fiscal tightening being announced at the Budget.
Gilt Markets
Continued upside borrowing surprises increase the risk that the DMO's financing remit will have to be revised higher. Watch whether the OBR revises its FY2026-27 borrowing forecast up at the Budget, and whether that revision is priced into gilt issuance guidance beforehand.
Next release: Public Sector Finances, UK: August 2026 — 22 September 2026 (confirmed by the ONS in today's bulletin).
OBR, Economic and Fiscal Outlook, March 2026, and monthly profiles, April 2026 — all OBR comparisons verified against Tables 4 and 8 of the ONS July 2026 bulletin, 21 August 2026
Strip away the noise from self-assessment timing and the July figures tell a simple story. The tax side of the ledger is doing roughly what the OBR expected, and in places better. Central government receipts for the financial year to date are running £2.8bn ahead of the March profile, VAT is up 7.6% year-on-year, corporation tax up 13.0%. Whatever else is going wrong with the public finances, it isn't a shortfall in the tax take.
The overshoot is on the spending side, and it's now a persistent feature rather than a one-off. Central government expenditure for the financial year to July is £5.1bn above the OBR's forecast profile, against a receipts beat of only £2.8bn. Net social benefits are up 7.3% on the year, departmental spending on goods and services up 3.6%, transfers to local government up 4.3%. None of these are shocking numbers in isolation. Added together, month after month, they are the reason borrowing keeps landing above forecast even in months when the tax data reads well.
Debt interest remains the wild card. July's £1.3bn capital uplift on index-linked gilts is a reminder that a meaningful slice of the UK's £2.98 trillion debt stock still moves with RPI rather than a fixed coupon, a legacy of decades of unusually heavy index-linked issuance by international standards. It adds volatility to the monthly print that has nothing to do with the underlying fiscal stance, and it means the interest bill will keep surprising in both directions as RPI prints come and go.