UK Borrowing Tops Forecast Again in July as ONS Corrects a VAT Data Error

The July Numbers

Central government borrowed £6.4 billion in July, £1.1 billion more than a year earlier, even as self-assessed income tax receipts came in at £17.1 billion — the highest for any July since comparable monthly records began in 1999, and £1.7 billion more than July 2025. Local government ran a £2.1 billion surplus and public corporations a £2.4 billion surplus, partially offsetting central government's borrowing. Total central government spending rose 5.4% year-on-year to £110.7 billion, driven by higher debt interest payable (up 9.6%, partly reflecting Retail Price Index-linked gilts), central government net social benefits (up 7.2%), and departmental spending on goods and services (up 3.0%).

The VAT Correction, Explained

The correction and a separate, deliberate tax policy are easy to conflate, so it's worth separating them. The correction: HMRC identified a processing error affecting VAT receipts data used in the June 2026 Public Sector Finances release, which overstated VAT receipts for March, April, and May 2026 by about £235 million each — roughly 1.3% of total VAT receipts in those months. That has now been fixed, and no other months were affected. Separately, the UK government's "Great British Summer Savings" scheme has been temporarily cutting VAT from 20% to 5% on certain family-focused activities and children's meals, running from June 25 to September 1, 2026 — a deliberate, announced policy rather than a data error, timed to coincide with the start of the Scottish school summer holidays. (Note: the ONS bulletin's own text cites a July 25 start date, which appears to be a typo in that document — the June 25 date is confirmed by the government's own scheme announcement.)

Debt and the Government's Fiscal Targets

Public sector net debt was provisionally estimated at £2,984.9 billion at the end of July, £95.9 billion more than a year earlier, though at 94.1% of GDP it was actually 0.8 percentage points lower as a share of the economy than a year earlier. A wider balance-sheet measure, public sector net financial liabilities, stood at £2,657.7 billion, or 83.7% of GDP. One of the government's stated fiscal objectives is to run a surplus on the public sector's day-to-day ("current") budget by the financial year ending March 2030. Central government's own current budget was in a £3.5 billion surplus in July 2026, though the ONS notes this was £0.7 billion smaller than the same month a year earlier — a single month that doesn't settle whether the government is on track for its 2030 goal, but one more data point feeding into that assessment.

Reader Q&A

Q: What exactly went wrong with the VAT data, and does it change the picture for July 2026 itself?

A: HMRC identified a processing error affecting VAT receipts recorded in the June 2026 release, overstating VAT collections for March, April, and May 2026 by about £235 million each. That means borrowing for those three specific months was previously understated by a similar margin. The July 2026 figures themselves were not the source of the error — only the earlier months' data was revised.

Q: Is the "Great British Summer Savings" scheme related to the VAT correction?

A: No — they're separate. The Summer Savings scheme is a deliberate government policy cutting VAT from 20% to 5% on certain family activities and children's meals from June 25 to September 1, 2026, at an estimated cost of about £300 million. (The ONS bulletin's text says July 25, but that appears to be a typo in the bulletin — the government's own scheme announcement confirms June 25.) The VAT correction was a separate, unrelated data-processing error in how HMRC's earlier receipts were recorded.

Q: Why did borrowing come in higher than forecast despite record self-assessed income tax receipts?

A: Self-assessed income tax receipts of £17.1 billion were the highest for any July since comparable records began in 1999, and £1.7 billion more than July 2025. But total government spending grew faster — up 5.4% year-on-year to £110.7 billion, driven by higher debt interest costs, social benefit payments, and departmental spending — which outweighed the extra tax revenue.

Q: How does July's borrowing affect the government's 2030 fiscal target?

A: The government's stated goal is to run a surplus on the public sector's day-to-day (current) budget by the financial year ending March 2030. Central government's own current budget was in a £3.5 billion surplus in July 2026, though the ONS notes this was £0.7 billion smaller than the same month last year — and the full-year picture will depend on many more months of data before it's clear whether the government is on track.