Newsletter issue – August 2025
Chancellor Rachel Reeves's £25 billion National Insurance hike brought in £300 million less than expected in its first two months. PAYE income tax and employer NI contributions totalled £37.2 billion in May - up 9.5% from last year but £200 million below forecast.
May borrowing hit £17.7 billion, exceeding the OBR forecast by £600 million and up £700 million from last year. Despite higher tax receipts (£82.5 billion in May), spending outpaced revenue due to inflation-linked benefit increases and running costs.
Given the shortfall in expected revenue from Rachel Reeves's National Insurance hike and the higher-than-forecast borrowing, future budgets may need more conservative revenue assumptions, especially if economic growth or wage inflation slows. If revenue continues to underperform, the Treasury may consider additional tax increases or new levies to meet fiscal targets. Alternatively, there could be a push to tighten compliance and enforcement to boost receipts without changing rates.