- Borrowing was £1.1 billion in July 2025 – £2.3 billion less than in July 2024
- Self-assessment tax receipts were £2.7 billion higher than the same period last year and compulsory social contributions were also up by £2.6 billion after changes to employer national insurance (NI) in April
- But public sector pay rises, inflation linked benefit increases and increased investment gobbled up the additional income
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK public sector finances:
“There is a great deal of good news to be found in July’s public sector borrowing figures but the overall predicament the chancellor finds herself in hasn’t changed. Borrowing for the month hit a three-year low thanks to a chunkier than usual self-assessment tax take and increased NI contributions.
“But that’s only half the picture. If you look over at the other side of the column spending also increased, with additional cash required to cover public sector pay rises, inflation linked benefit increases and all that extra investment the government is ultimately hoping will power growth.
“Add in a slight jump in borrowing costs compared to the previous year and it’s clear the UK is still stuck in the cycle of spending more than it brings in. With big increases to pensions and benefits likely on the way next April, it’s clear Rachel Reeves will have to make more tough choices in the autumn.
“July might look rather rosy but zoom out over the first four months of the financial year and the deficit is considerably higher than it was during the same period last year, which means big questions remain. How much extra tax will need to be raised once the OBR forecasts are in, and which tax levers will the government decide to pull?
“Longer-term growth is clearly the desirable outcome, and the government has taken considerable strides to try and achieve that growth through policy changes and investment. But in the intervening period care needs to be taken to ensure that whatever levers are pulled, they don’t unintentionally stymie the very growth that the government is trying to foster.”
