Tax Receipts on the Rise but the UK’s Public Borrowing Problem Persists

While National Insurance and income tax receipts have increased the improvement won’t be sufficient to counterbalance growing levels of government borrowing.

Tom Goddard, Senior Associate, said:

Although HMRC’s report shows an increase in tax receipts, with major tax revenues like National Insurance Contribution (NIC) receipts up by over £2 billion in May 2025 compared to May 2024, it does not look like enough to fill the public borrowing black hole, which remains at historically high levels.

May’s borrowing of £17.7 billion is approximately £700 million higher than the same month in the previous year, indicating an overall upward trend compared to last year. The April 2025 borrowing figure was also the highest on record. Recent policy U-Turns, such as the Winter Fuel Allowance, and significant commitments in key areas including affordable housing, healthcare, transport, energy, and defence, will only increase Government spending over the coming months.

Autumn Budget: Tax Rises Likely

With government spending expected to rise, attention now turns to the Autumn Budget. Tax increases may be required to restore fiscal balance.

To balance the books, further tax adjustments will need to be made in the Autumn Budget. A 1% rise in the basic rate for income tax, by HMRC’s own reckoning, could generate almost £8 billion in additional revenue in the 2026/27 fiscal year. An 1% increase in the main rate of employee National Insurance contributions could yield around £5 billion and raising the higher and additional tax rates by 1% could bring in an extra £2.2 billion.

Discussions within government are likely already underway.

It is expected that policymakers, including those close to the Chancellor, Rachel Reeves, will already likely be analysing these estimates and their available options. They face the challenge of balancing the delivery of promised and popular public investments with maintaining fiscal responsibility and adhering to manifesto commitments.

Mixed Performance Across Tax Categories

The data shows that certain tax areas are seeing higher yields, while others reflect the legacy of past policy changes.

The increase in employer NICs, which took effect from April 2025, is reflected in HMRC’s statistics. But total NIC receipts remain 2.16% lower for these past 12 months compared with the year prior because of the significant drop-in employee NIC rates by the last Government, it will be interesting to see how much additional revenue is generated from a full 12 months of the increased employer NICs.

Income and corporation tax revenues are also showing movement

Income tax receipts are up by 9.6% over the past twelve months, driven by the continued freezing of the income tax bands forcing more and more taxpayers into higher rates of tax through ‘fiscal drag’. Corporation tax has increased by 5.3%, as the increase in the Corporate Tax rate to 25% flows through the system.

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