Today’s public finance figures show borrowing continues to outstrip OBR forecast

Responding to today’s ONS figures on the public finances, Nick Ridpath, Research Economist at the Institute for Fiscal Studies, said:

“Today’s figures show that government borrowing has continued to exceed the OBR’s forecast for the year to date, to the tune of around £10 billion. This overshoot is driven by a combination of lower-than-expected tax receipts and higher-than-expected borrowing by councils and other bodies outside of central government control.  What this highlights is that forecasts for the level of borrowing this year are subject to considerable uncertainty, never mind those for borrowing in four or five years’ time. Operating with minimal fiscal margin for error is risky, and this is one reason why the Chancellor might sensibly take steps to increase her so-called ‘fiscal headroom’ at next week’s Budget.”

Today, the Office for National Statistics published new figures on government revenues, spending, and borrowing, which means we now have provisional public data on the public finances for the first seven months of the 2025-26 financial year. This is the last such data release before next Wednesday’s Budget.

• In the seven months up to October in the financial year 2025-26, public sector net borrowing was £116.8 billion, £9.9 billion (9%) more than expected at the OBR’s March forecast and £9.0 billion (8%) more than the £107.8 billion that the government borrowed in the first seven months of 2024-25. Around one-third of this overshoot stems from higher-than-expected borrowing by local authorities, likely reflecting high spending on support for children with special educational needs.
• The government might have hoped that higher-than-expected inflation this year would have fed through into higher tax receipts, especially from VAT. So far, though, there is no sign of VAT receipts exceeding expectations, with accrued VAT receipts net of refunds up to October remaining slightly below forecast.  Income tax receipts are also running slightly below forecast. Overall central government receipts for the financial year up to October are £2.8 billion below forecast.  

This data will be subject to revision, and we should not over-read into monthly fluctuations. Today’s release does, nonetheless, highlight important context for next week’s Budget:  uncertainty around tax revenues, pressures on public spending, and stubbornly high costs of servicing government debt. IFS researchers will give their verdict on the Chancellor’s announcements at an online event at 10:30 next Thursday.