The UK’s financial future is under severe strain, according to the Office for Budget Responsibility (OBR), which has raised concerns over ballooning pension costs, rising climate-related expenditures, and increasing public debt.
Without significant policy changes, the OBR projects that government debt could skyrocket to 270% of GDP by 2070 — a steep rise from its current level under 100%.
OBR chair Richard Hughes didn’t mince words: “The UK’s fiscal path is unsustainable. We’ve made financial commitments as a nation that simply exceed what we can afford.”
In its annual fiscal health check, the OBR reveals that the UK already ranks worryingly high among advanced nations — sixth in public debt, fifth in fiscal deficit, and third in borrowing costs across 36 developed economies.
Efforts to bring the UK’s finances back on track after recent economic crises — including the pandemic and the energy shock — have seen only modest and short-lived results. Complicating matters further is the international landscape: the lingering impact of US trade tensions, driven by former president Donald Trump, and the UK’s pledge to raise defence spending to 5% of GDP by 2035.
The OBR reiterated that if average global tariffs rise to 20% — as might happen under intensified trade wars — it could shrink the UK’s GDP by 1% and erase any financial buffer the government has over the next five years.
Despite recent fiscal frameworks introduced by Chancellor Rachel Reeves, the OBR argues that such rules have had limited impact. Debt has grown by 24% of GDP in the past 15 years and by 60% over the last two decades — despite nine fiscal frameworks since 2010, eight of which aimed to reduce debt relative to GDP.
Hughes noted that Reeves’s fiscal rules, while allowing for more borrowing to invest, are “among the loosest” ever implemented. He echoed concerns raised by economists, including former Bank of England deputy governor Charlie Bean, that the £9.9 billion in headroom Reeves has set aside is insufficient, especially in today’s volatile economic environment.
“In a decade as uncertain as the 2020s, leaving under £10 billion in fiscal space is extremely risky,” Hughes said, adding that both Reeves and her recent predecessors have maintained narrow buffers against unpredictable shocks.
As the autumn budget approaches, the spotlight intensifies on Reeves. The OBR confirmed it is reassessing its productivity growth estimates, a key factor in economic forecasting. According to Hughes, even a slight shift — as little as 0.1% in productivity growth — could be enough to eliminate the chancellor’s fiscal margin altogether.
“This assumption is central to all our projections,” Hughes added, underlining how closely the UK’s economic outlook hinges on even the smallest changes in growth and policy.
