The government’s borrowing bill came in lower than expected in May, as higher business tax revenues and falling debt interest payments helped to improve the UK’s public finances.
According to figures released by the Office for National Statistics (ONS), public sector net borrowing fell to £17.7 billion last month — below economists’ forecasts of around £18 billion, and down from £20.2 billion recorded in April, the first month of the new fiscal year.
The fall was largely driven by a £1.8 billion rise in national insurance contributions from employers, following an increase to the rate that came into effect on April 1. The Treasury also benefited from a £700 million reduction in debt interest payments, which dropped to £7.6 billion, thanks to lower retail price inflation (RPI) — a key benchmark for index-linked gilts.
Despite the improvement, May’s borrowing figure was £700 million higher than the same month last year, as the cost of government services and inflation-linked benefit payments continued to climb. The UK’s debt-to-GDP ratio stood at 96.4 per cent in May, reflecting the lingering effects of pandemic-era spending, inflation, and subdued growth.
The modest undershoot in borrowing will be welcomed by Chancellor Rachel Reeves, who has pledged to meet her key fiscal rule of borrowing only for investment by the end of the current parliamentary term. Speaking at The Times CEO Summit this week, Reeves said the fiscal rules were vital to placing the public finances on a “firm footing.”
“It would be great to be in a different world with a debt-to-GDP ratio of 50 per cent,” Reeves said. “But you don’t get to choose your inheritance. This is my inheritance and I am dealing with it.”
Reeves is working with a relatively narrow buffer: in the spring budget, she had just £9.9 billion of fiscal headroom under her primary borrowing rule. The latest borrowing figures may provide some comfort — but challenges remain.
Paul Dales, chief UK economist at Capital Economics, noted that the recent drop in borrowing coincided with a sharp decline in retail sales volumes, suggesting that the economic momentum seen in the first quarter of the year may have already faded.
“The sharp drop back in retail sales volumes in May adds to other evidence that the burst of economic growth in Q1 is over,” Dales said. “That said, consumer spending may still outperform other areas of the economy this year.”
Darren Jones, chief secretary to the Treasury, said the new government had prioritised stability and was now focused on delivery.
“Since taking office, we have taken the right decisions to protect working people, begin repairing the NHS and fix the foundations to rebuild Britain,” he said. “We stabilised the economy and the public finances; now we need to ensure that the British economy delivers for working people.”
While the borrowing figures mark a small but positive shift, economists warn that structural pressures remain — including stagnant productivity, high welfare spending, and the rising cost of servicing debt. As fiscal headroom remains tight, the coming months will test the government’s ability to deliver growth while keeping borrowing under control.