Strong tax receipts fail to offset growing government spending pressures
Strong tax receipts have failed to offset growing government spending pressures, say leading audit, tax and business advisory firm, Blick Rothenberg.
Tom Goddard an assistant manager at the firm, said: “The chancellor, John Healey, is facing a growing fiscal challenge in the lead up to the Autumn Budget. Borrowing reached £18.3bn in August, an increase on the £14.8bn forecast by the Office for Budget Responsibility (OBR), while public sector debt remains at high levels at 93.8% of GDP. Debt interest costs alone totalled £8.8bn for the month.”
He added: “The increased borrowing was, however, not the result of weak tax receipts. Indeed, government revenues continue to grow, with £68.8bn collected in August, the highest August figure on record. HMRC’s latest statistics show that total receipts over the 12 months to August 2026 reached £962.6bn, with income tax (35%), National Insurance Contributions (22%) and VAT (19%) remaining the largest contributors.”
Tom said: “Rather, the increased borrowing is likely being driven by government spending growing faster than revenues. Inflation continues to be the main driver behind this, as the wars in Iran and Ukraine drive up fuel prices which only exacerbate the issue.”
He added: “Reports suggest the chancellor has only around £10bn of fiscal headroom remaining. With increasing demands for higher defence spending and further cost of living support, the scope for significant new spending commitments appears limited. As such, some form of tax increase now seems increasingly likely.”
Tom said: “One notable exception within the tax receipts data is Inheritance Tax (IHT). Receipts for August 2026 were £598m, lower than both August 2025 (£658m) and August 2024 (£697m). While it is difficult to draw conclusions from a single month’s figures, the decline may reflect behavioural changes as more families recognise they could be within the scope of IHT and take proactive estate planning measures to reduce their exposure.”