HMRC Stats May 2026: Rising Tax Receipts Still Not Enough

Borrowing Continues to Climb

Government borrowing reached £23.3 billion in May 2026, £4.8 billion higher than the £18.5 billion forecast by City economists. While tax receipts remain strong, spending commitments and debt costs are rising at a faster pace.

Tom Goddard, Assistant Manager, said:

Despite a growing tax take, Government borrowing in May 2026 came in at £23.3 billion, well above the £18.5 billion predicted by City economists.

The latest figures underline a broader trend. Borrowing for the financial year to date has reached £46.3 billion, which is £8.9 billion higher than the same period last year and £7.7 billion above the Office for Budget Responsibility’s forecast. At the same time, public sector net debt has climbed to 95.1% of GDP, its highest level since the early 1960s.

The Impact of Global Events

The principal driver of this is the Iran War. Public finances are being directly squeezed by higher interest rates on government debt, as markets anticipate a prolonged period of elevated inflation due to volatile oil prices. Central government debt interest alone reached £11.7 billion in May which is the highest May reading on record.

Higher energy prices can feed inflation across the economy, increasing the likelihood of elevated borrowing costs for governments, businesses and households alike. For the Treasury, this creates a double challenge: managing rising debt interest costs while maintaining spending on public services and welfare.

Tax Revenues Are Rising

HMRC’s latest statistics show that the total tax recites for April to May 2026 are £153.7 billion. Income tax receipts are up 9.2% over the past twelve months. The increase will likely be driven by the ongoing freeze on income tax thresholds, now extended to 2031, which continues to pull more taxpayers into higher rate bands through fiscal drag. Corporation tax receipts have increased by 5.4%.

This highlights a significant feature of the current tax landscape: the Government is raising more revenue without necessarily increasing headline tax rates. Frozen thresholds mean many individuals are paying more tax as wages rise, a phenomenon known as fiscal drag.

Could Further Tax Rises Be on the Horizon?

However, as this ever-increasing tax take is still not enough to cover Government deficit, the question of where additional revenue is to be found will occupy many of those at the Treasury, especially off the back of the UK defence investment plan likely to be published in the coming weeks.

Potential options remain available to the Government.

As Tom concludes:

A 1% rise in the basic rate of income tax could generate almost £8 billion in 2026/27, a 1% increase in employee National Insurance Contributions (NICs) could yield around £5 billion and raising the higher and additional rates by 1% could bring in a further £2.2 billion.

While no decisions have been announced, the latest borrowing figures will inevitably fuel speculation about future tax policy ahead of upcoming fiscal events.

Why It Matters

For businesses, rising borrowing levels and continued pressure on public finances increase the likelihood of future tax changes, spending reviews and policy interventions. Employers should pay close attention to any proposals affecting National Insurance, corporation tax or workforce costs.

For individuals, the continued freeze on income tax thresholds means many will see their tax burden rise even if tax rates remain unchanged. Further tax-raising measures cannot be ruled out if borrowing remains elevated.

What You Should Consider Next

Review financial plans and budgets in light of the possibility of future tax changes.

Employers should monitor developments around National Insurance and wider employment taxes.

Individuals should assess the impact of fiscal drag on their long-term tax position and earnings.

Businesses considering investment or expansion should factor potential tax policy changes into future forecasts.

Keep a close eye on forthcoming Treasury announcements, particularly around defence spending and any Autumn fiscal statement, which could provide clues on how the Government intends to close the funding gap.

The latest figures demonstrate that while tax revenues are growing, they are not keeping pace with the demands on the public purse. The challenge for policymakers is becoming increasingly clear: balancing economic growth, public spending commitments and the need to restore fiscal stability.

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact.