The UK’s Office for Budget Responsibility (OBR) announced on Wednesday that approximately three-quarters of the planned reduction in borrowing over the next five years will be achieved through tax increases, as outlined in the Autumn Budget.
Key Findings:
- Fiscal Mandate: The government’s goal to balance the current budget by 2029-30 is met with a £22 billion margin. The probability of meeting this target has increased to 59% from 54% in March.
- Spending Increases: Budget policies are set to increase spending every year, reaching an additional £11 billion by 2029-30. Notably, £9 billion of these increases are attributed to welfare policy reversals and the removal of the two-child benefit limit.
- Borrowing Forecasts (Public Sector Net Borrowing – PSNB):
- £138.3 billion in 2025-26
- £112.1 billion in 2026-27
- £98.5 billion in 2027-28
- £86.9 billion in 2028-29
- £67.9 billion in 2029-30
- Taxation: The overall tax burden is projected to hit a record 38.3% of GDP by 2030-31. The budget introduces the third-largest medium-term tax increase since the OBR’s inception in 2010, generating an additional £26.1 billion by 2029-30.
- Specific tax measures include:
- Freezing personal tax thresholds: £8.0 billion by 2029-30.
- NICs on salary-sacrifice pensions: £4.7 billion by 2029-30.
- Increases to dividend, property, and savings tax rates: £2.1 billion by 2029-30.
- Mileage-based charge on electric cars: £1.4 billion by 2029-30.
- Specific tax measures include:
- Productivity Growth: The medium-term productivity growth forecast has been cut to 1.0% from 1.3%.
- Economic Growth (GDP):
- 2025: 1.5% (up from 1.0% in March)
- 2026: 1.4% (down from 1.9% in March)
- 2027: 1.5%
- Inflation (CPI):
- 2025: 3.5% (up from 3.3% in March)
- 2027: 2.0%
- Trade Policy Uncertainty: The OBR highlighted “significant uncertainty” regarding future US and global trade policy, including potential threats of higher tariffs.
Market Reaction:
Following the budget details, GBP/USD initially rose towards 1.3200 but then reversed course, trading marginally lower near 1.3150 by the end of the day.