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ONS deputy director for public sector finances Rob Doody said: “Last month saw the public sector borrow £700m more than at the same time last year, with only 2020, affected as it was by Covid-19, seeing higher May borrowing in the time since monthly records began.

“While receipts were up, thanks partly to higher income tax revenue and national insurance contributions, spending was up more, affected by increased running costs and inflation-linked uplifts to many benefits.”

Despite May’s overshoot, borrowing for April and May combined stood at £37.7bn — £2.9bn lower than the OBR’s cumulative forecast for the first two months of the 2025–26 fiscal year. Nonetheless, analysts warn the chancellor Rachel Reeves may face difficult decisions ahead.

“Despite the overshoot in May, public borrowing was £2.9bn below the OBR’s forecast in the first two months of the fiscal year. That said, the OBR may still revise up its borrowing forecasts from March in the autumn budget,” City consultancy Capital Economics said.

“That and already-tight spending plans mean tax hikes later this year appear increasingly likely.”

Central government receipts rose by £3.5bn year-on-year to £61.7bn in May, boosted by a £1.9bn increase in income tax, £800m more in VAT receipts and £600m in corporation tax. An increase in employer national insurance contributions contributed to a £1.8bn rise in compulsory social contributions, bringing that total to £15.1bn.

However, central government spending climbed by £4.1bn over the same period. Pay rises for public sector workers and higher inflation-linked benefit payments, along with earnings-linked uplifts in pensions, were key drivers of the increase.

The latest borrowing leaves the UK’s net debt at 96.4% of GDP, 0.5 percentage points higher than a year ago and among the highest levels recorded since the 1960s.

Rachael Griffin, tax and financial planning expert at Quilter, warned: “As the country edges closer to the autumn budget, speculation continues about potential tax changes. Reports suggest Labour may look again at capital gains tax, dividend reliefs, and even consider further freezes to income tax thresholds. Combined with rising property and asset values, this could make the overall tax landscape significantly more punitive.

“In this environment, early and careful tax planning is essential. With thresholds still frozen and reliefs under review, the cost of inaction is only going to rise.”

Thomas Pugh, economist at RSM UK, said the chancellor’s room for manoeuvre had narrowed since March. “Looking ahead to the budget in the autumn, the underperformance of the economy and higher borrowing costs mean the chancellor may already have lost the £9.9bn of fiscal headroom that she clawed back in March,” he said.

“Throw in the tough outlook for many government departments announced in the spending review and U-turns on welfare spending and the chancellor will probably have to announce some top-up tax increases after the summer.”

Most economic forecasters, including the International Monetary Fund and the Bank of England, have downgraded the UK’s growth prospects this year. This could potentially reduce tax receipts over the longer term and force Reeves to make further spending cuts or raise taxes.

Alison Ring, director of public sector and taxation at the Institute of Chartered Accountants in England and Wales, urged longer-term thinking. “While there is always a hope that tax rises can be kept to a minimum, we hope the chancellor will take this opportunity to consult over the summer on a range of potential tax changes, even if they may not all be needed. It is time to end HM Treasury’s extremely bad habit of tinkering with the tax system with policies designed in haste in the run-up to each fiscal event.”

The chief secretary to the Treasury said the latest borrowing figures showed the government has “stabilised the economy and the public finances”.

Darren Jones said: “Since taking office, we have taken the right decisions to protect working people, begin repairing the NHS, and fix the foundations to rebuild Britain. We stabilised the economy and the public finances; now we need to ensure that the British economy delivers for working people.

“Last week’s spending review showed how we are investing in the UK’s security, health, and the economy through our Plan for Change, so that people are better off.”