Public spending outpaces receipts

The Office for National Statistics (ONS) published the monthly public sector finances for June 2026 on 21 July, reporting a provisional fiscal deficit for the month of £16bn. This was £7.9bn less than in June 2025 and £0.3bn better than budget. 

Together with a £4.8bn revision reducing the deficit for the first two months of the financial year, this brought the deficit for the first quarter of the 2026/27 financial year to £57.6bn, £3.7bn less than in the same period a year previously, but £2.7bn overbudget.

Martin Wheatcroft, external advisor on public finances to ICAEW, said: “A combination of revisions to the data for previous months and a broadly on-target result for June helped reduce the year-to-date budget overrun. 

“This is good news for new Chancellor John Healey as he attempts to free up funds to cover the costs of a series of announcements that have started to appear since Prime Minister Andy Burnham assumed office.”

However, he warned that the medium- and long-term fiscal outlooks remain extremely challenging. “The former defence secretary will be all too aware that he needs to find £1.2bn a year to plug the unfunded element of the defence investment plan, on top of the money he needs to find for the policies being announced by his new boss,” he said. 

“This is before he starts looking for the much larger £11bn a year that will be needed to deliver on the government’s ambition of spending 3.0% of GDP on defence and security by 2030.”

Month of June 2026

The provisional shortfall of £16bn in the month of June was £7.9bn lower than the same month a year earlier, comprising a current budget deficit of £11.8bn (£7.8bn lower) and net investment of £4.2bn (£0.1bn lower).

The improvement of £7.8bn in the current budget deficit principally arose from a £6.1bn reduction in interest on inflation-linked debt. This is due to a spike in inflation in 2025 that was not repeated to the same extent this year.  

The deficit for the month was £0.3bn better than budget, comprising a £0.4bn positive variance on the current budget deficit less a £0.1bn overspend on net investment.

Receipts of £100.8bn for the month were £0.9bn higher than the £99.9bn monthly average for the previous 12 months (excluding January 2026, the big self-assessment month). Meanwhile, current spending of £112.5bn was £4.8bn higher than the £107.7bn monthly average for the previous 12 months (including January 2026). 

Net investment of £4.2bn was £1.6bn below the £5.8bn monthly average for the past 12 months (excluding March 2026 with its end-of-year capital rush).

Year-to-date

The deficit for the first three months of the financial year of £57.6bn was £3.7bn lower than a year previously but £2.7bn overbudget, comprising:

• a current budget deficit of £42.0bn, £5.0bn lower than a year previously but £1.3bn overbudget; and
• net investment of £15.6bn, £1.3bn more than in April to June 2025 and £1.4bn more than budgeted.

Receipts of £294.4bn  were £16.9bn or 6% higher than in the same period a year ago as set out in Table 1, with:

• income tax up 8%;
• VAT up 4%;
• national insurance up 5%; and
• corporation tax up 15%.

Income tax receipts and national insurance receipts benefited from fiscal drag, while better corporate profits and anti-avoidance measures helped push up estimated corporation tax receipts.

Table 1 also shows how current spending (including depreciation) in April, May and June 2026 totalled £336.5bn, up 4% from the first three months of the previous financial year. The £12bn increase can be analysed between:

• a £6bn increase in spending on public services (up 3%),
• a £6bn increase in welfare (up 7%),
• a £0.9bn increase in subsidies (up 10%),
• a £2bn reduction in debt interest (down 5%), and
• a £1.1bn increase in depreciation (up 6%).

The 7% increase in the cost of welfare was partly down to benefit rises, including a 6.2% increase in the Universal Credit standard allowance and a 4.8% increase in the state pension from April 2026, combined with an increasing number of claimants (including more pensioners).

The fall in debt interest was driven by a swing on inflation-linked debt in the three-month period more than offsetting the rise in interest as debt grows:

• a £3.9bn fall in the inflation uplift on index-linked gilts over the three-month period (£12.6bn compared with £16.5bn); and
• a £1.9bn increase in other debt interest (£28.5bn compared with £26.6bn).

Net investment in the first quarter was up by £1.3bn to £15.6bn compared with a year previously, comprising:

• a £1.8bn increase in gross capital formation (ie, capital expenditure) to £24bn; and
• a £0.6bn increase in capital grants (including research and development and irrecoverable student loans) to £10.5bn; offset by
• a £1.1bn increase in depreciation to £19bn.

Borrowing and debt 

Table 2 summarises how public sector net borrowing (PSNB), to fund the deficit of £58bn, combined with the £14bn needed to fund government lending and working capital requirements (total borrowing of £72bn) to take public-sector net debt to a provisional £2,990bn on 30 June 2026.

The ratio of public sector net debt to GDP increased by 1.2 percentage points from 93.7% of GDP at the start of the financial year to a provisional 94.9% on 30 June 2026 after 1.0 percentage points of ‘inflating away’ caused by inflation and economic growth adding to GDP (the denominator in the debt to GDP ratio).

Public sector net debt on 30 June 2026 of £2,990bn comprised gross debt of £3,527bn less cash and other liquid financial assets of £537bn.

Public sector net financial liabilities (PSNFL or ‘persnuffle’) of £2,662bn incorporated £741bn in other financial liabilities less £1,069bn in illiquid financial assets. Meanwhile, negative public sector net worth of £756bn was net of £1,906bn in non-financial assets.

Revisions

Caution is needed with respect to the numbers published by the ONS, which are repeatedly revised as estimates are refined and gaps in the underlying data are filled. This includes local government where the numbers are only updated quarterly in arrears and are based on budget or high-level estimates in the absence of monthly data collection.

In this release the ONS reduced the previously reported numbers for the current deficit, net investment and the deficit in the first two months of the financial year by £4.2bn, £0.6bn and £4.8bn respectively to reflect updated data and corrections.

The ONS also revised public sector net debt on 31 May 2026 down by £8bn (to £2,976bn), again to reflect updated data and corrections.

For further information, read the public sector finances release for June 2026.

• For further information, read the public sector finances release for May 2026.