The ONS published July's public sector finances this morning. The government borrowed £1.8 billion in a month the OBR had forecast would deliver a £500 million surplus — a £2.3 billion miss. Across April to July, borrowing has reached £56.7 billion, which is lower than the same four months last year but again £2.3 billion above the OBR's forecast. Overall debt is approaching £3 trillion.
Here is my honest view, and it is not the one the coverage will give you. £2.3 billion is not the story. It is a rounding error against a £3 trillion debt pile and it will be revised. The story is that the Budget is now dated — Chancellor John Healey has confirmed Wednesday 28 October, roughly a month earlier than most analysts expected — and that between now and then a very large number of business owners are going to spend nine weeks reading tax speculation and doing nothing useful with it. There is something useful to do instead, and it takes about an hour.
What the numbers actually say
July is always a good month for the Exchequer because self-assessment payments land in it, and this July was no exception: borrowing was far below June's £16 billion on the back of a surge in self-assessed income tax receipts. That lift is annual and it is now spent. What pushed the month over forecast was spending, not a receipts failure — social payments including benefits and the state pension came in £2 billion higher than the same period last year.
The economists quoted are not predicting catastrophe, they are predicting constraint. Ashley Webb, senior economist at Capital Economics, called it a continuation of a “run of bad news” and said “there will be little scope to raise borrowing in the Budget later this year”. Joe Nellis, head of economic research at MHA, said the figures will not “prevent difficult decisions that must be made in the upcoming October Budget”, and that Healey will have to find “additional tax revenue, tighter control over public sector spending and changes elsewhere”. Healey's own response leaned on the comparison rather than the level: “We are cutting the deficit faster than any other G7 economy, while giving people a bit of breathing space with cost of living pressures.”
There is a counter-view worth holding alongside it. Simon French of Panmure Liberum, a former Treasury economist, told City A.M. on 20 August that the OBR's fiscal buffer stands at £22.7 billion and that “immediate remedial action just to retain the policy status quo is, in our view, not likely to be required”. His base case is that this Budget “will be rhetorically more radical than it will be (or can be) financially”. Two credible reads, opposite conclusions, nine weeks to go. That is exactly why you model your own exposure rather than trying to forecast the Chancellor's.
What a Budget change actually costs a real payroll
Take an illustrative example: a trading limited company turning over £600,000, with twelve employees on an average salary of £30,000 and a director on a £12,570 salary, making £90,000 of profit. Employers currently pay National Insurance at 15% on earnings above a secondary threshold of £5,000 a year, and the Employment Allowance knocks up to £10,500 off the bill.
As things stand for 2026/27: each employee costs (£30,000 − £5,000) × 15% = £3,750, so twelve of them come to £45,000. The director adds (£12,570 − £5,000) × 15% = £1,135.50. Gross employers' NI of £46,135.50, less the £10,500 allowance, gives a bill of £35,635.50 a year. Now run the three changes people are speculating about:
- A penny on the rate (15% to 16%): £3,075.70 a year more. Twelve staff at £4,000 each is £48,000, the director £1,211.20, less the allowance — £38,711.20.
- The threshold cut from £5,000 to £3,000, rate untouched: £3,900 a year more. Twelve staff at £4,050, the director £1,435.50, less the allowance — £39,535.50.
- The Employment Allowance withdrawn: £10,500 a year more, immediately and in full, with no arithmetic required.
Because employers' NI is deductible, a profitable company gets some of that back. On £90,000 of profit this company sits in the marginal relief band between £50,000 and £250,000, paying £20,100 of corporation tax — £22,500 at the 25% main rate less £2,400 of marginal relief — and facing an effective 26.5% on the next pound of profit. So the threshold cut is a net £2,866.50 and the loss of the allowance a net £7,717.50. A business at breakeven gets none of that relief and takes the full cash hit.
The order of damage is the reverse of the order of headlines
That is the point of this piece. A quiet two-thousand-pound change to a threshold costs this business more than a penny on a rate that would lead every bulletin. And a line about the Employment Allowance, which would be reported as technical housekeeping if it were reported at all, costs three and a half times what the headline rate change does. The threshold applies to every person on the payroll simultaneously; the rate only touches the slice of pay above it. Thresholds are where the money is, and thresholds are where the coverage isn't.
It cuts the other way too. If your business has ten staff on £15,000 of part-time earnings rather than twelve on £30,000, the threshold change hurts you proportionally far more, because a bigger share of each person's pay sits near the bottom of the band. Hospitality, retail, care and salons carry that shape of payroll. A single national number in a Budget speech does very different things to two businesses of identical turnover, and the only way to know which one you are is to run your own figures. Our true cost of a hire calculator will do the employer NI arithmetic on your actual salaries in a couple of minutes.
Three things to do before 28 October
One: confirm the Employment Allowance is actually claimed. It is worth £10,500 and it is not automatic — it is claimed by submitting an Employer Payment Summary through your payroll software, and it does not roll forward by itself in every package. Check the current year shows a claim, and check the three traps: a company whose sole director is the only employee liable for secondary Class 1 cannot claim at all; only one company in a connected group can claim; and if you run two payrolls, only one of them gets it. The rules are on GOV.UK's eligibility page. This is the single most valuable hour available to a small employer this month, and it has nothing to do with the Budget.
Two: put the three scenarios above onto your own payroll and into a forecast that runs past April 2027. Not the Budget's numbers — yours. The question you want answered before October is not “what will the Chancellor do” but “which of these would I have to price into next year's quotes, and by how much”. If a £3,900 change is a fortnight's profit, you have a pricing decision to make in November. If it is a rounding error, you can stop reading Budget coverage entirely. That is what cashflow and budgeting work is for, and management accounts are what make the answer trustworthy.
Three: do not restructure on a rumour. Incorporating, disincorporating, changing a salary and dividend split, or pulling a disposal forward are decisions with real costs and, in several cases, no way back. Nobody outside the Treasury knows what is in this Budget, and measures rarely commence on the day they are announced. Model the exposure now, hold the cash to respond, and make structural decisions in November when the actual measures and commencement dates exist. If someone is selling you a restructure this month on the strength of a newspaper prediction, that is a sales process, not tax planning.
What is still uncertain, and when we will know
Almost all of it. Nothing about the tax content of this Budget has been confirmed. What has been confirmed is the frame: Healey has adopted Rachel Reeves' fiscal rules, committing to fund all day-to-day spending from tax receipts by the end of the decade, and has said he will run “strong fiscal discipline”. Panmure Liberum's estimate is that Prime Minister Andy Burnham's publicly stated ambitions — defence spending at 3% of GDP by 2030, a higher income tax personal allowance, more social care funding — would cost around £39 billion a year, and that only substantial structural changes such as extending National Insurance to savings and investment income, replacing the inheritance tax regime, flat-rating pension tax relief or reforming property taxes could credibly fund them.
The dates that matter: the Budget and the OBR's accompanying forecast land on 28 October, alongside a devolution white paper expected to set out how regional mayors will retain a share of income tax and business rates — which is a live issue for anyone with premises. The ONS publishes public sector finances monthly, so August's figures arrive in late September and will tell us whether July was noise or trend. And your own next hard date is 31 January 2027, which is unaffected by any of this.
One more thing from the same ONS release that got less attention than the borrowing number and probably matters more to a shop: retail sales fell 0.5% in July, with clothing and footwear posting their slowest growth since May 2025. Whatever happens on 28 October, the demand side is doing its own thing. If you want the payroll modelling and the trading picture in one place before the Budget rather than after it, that is what our small business accounting and advisory work is built to do — and nine weeks is plenty of time.