The UK’s public finances have been left in a vulnerable position, the UK’s fiscal watchdog has warned in a damning verdict of Rachel Reeves’ Budget.
In a report accidentally published before the Budget was announced, the Office for Budget Responsibility said Reeves’ spending plans leave the UK spending more on debt interest than at almost any time in its post-war history.
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“While this Budget addresses some fiscal risks and increases the margin held against the government’s fiscal targets, it still leaves the UK public finances relatively vulnerable to future shocks,” the OBR said.
“Even if the government were to meet its fiscal rules and reduce overall borrowing…this would only reduce the UK’s deficit to the level that the average advanced economy had already achieved several years ago.
“That would leave the UK with a debt-to-GDP ratio that is around twice the advanced economy average and the sixth-highest among advanced economies.”
Tax burden hits record high
The warning comes as the OBR predicted that the tax burden would hit an all-time high as a share of the economy by the end of the decade, as more and more Brits get dragged into paying higher rates of tax.
Taxes as a share of GDP are forecast to increase from 35 per cent in 2024-25 to an all-time high of just over 38 per cent from 2029-30 onward, the OBR said. This would be 5 percentage points above their pre-pandemic level.
“Around two-thirds of this increase in the tax take since 2019-20 comes from rising personal taxes – primarily due to previously announced threshold freezes and employer NICs increases, and the personal tax rise package in this Budget,” the OBR said.
Income tax band freezes mean an extra 10m people will be dragged into higher rate bands by the end of the decade compared to 2023, the OBR said.
This is made up of 5.2m people who will be brought into paying tax, 4.8m who will be dragged into the higher rate band and 600,000 extra people who will pay the additional rate.