OBR forecasts and the government’s fiscal rules
The OBR’s accidental publication of their forecasts (and the government’s spending plans) prematurely today has thrown additional focus onto their role, as well as this year’s predictions.
Predictions for economic growth have improved in the short term, with economic growth forecast at 1.5% this year, up from 1.0% in March’s estimates. But the four subsequent years have each been downgraded slightly when compared with the March 2025 forecast.
The OBR respond to Budget proposals and assess the government’s ability to meet their fiscal rules. The government’s two main rules to meet by the end of this parliament in 2029-30 are in short:
- Not borrowing to fund day-to-day spending (the “stability rule”); and
- Government debt falling as a share of the national economy (the “investment rule”.
Weaker growth makes both targets harder to reach. The OBR predicted lower productivity could have resulted in further borrowing of c£16bn, meaning lower headroom for the chancellor to fund all routine expenditure from government revenues. Similarly lower growth would place higher pressure on the net debt to GDP ratio.
However, the range of tax increases and reforms announced in today’s budget are expected to bring in additional revenues of £26.1bn by the end of this parliament. Even with the government’s additional spending commitments, the OBR has said that the government’s ability to meet both of these targets is set to improve.
The Chancellor said that the stability rule should be met a year early. The OBR predict that the government will move into a budget surplus in 2028-29, and that in the final year of this parliament the surplus will reach £21.7bn. This should more than double the Chancellor’s headroom to meet the target, when compared with the forecasts released in March 2025.
Overall borrowing (including the borrowing used to fund the government’s capital expenditure) is predicted at £138.3bn in 2025-26, thereafter falling in each consecutive year to £67.2bn in 2029-30.
The increased headroom the OBR have predicted today provides the background to the government’s spending commitments. These include headline announcements:
- Ending the two-child benefit cap, which was introduced in 2017 and which the government claims has failed to meet its policy objective;
- Increasing the state pension in line with the triple lock, meaning a 4.8% increase in April 2026;
- Additional funding for devolved governments in Northern Ireland, Wales and Scotland;
However, the government’s increased tax revenues will also be used to plug the gap the government faces across the board to maintain public services. The government’s departmental expenditure limits announced today are set to rise to £517.9bn, up from an outturn of £484.3bn in 2024-25 – of which £203.4bn this year is due to be spent on health and social care alone.
Today’s Budget is therefore one where the Chancellor’s tax rises are being used to increase headroom and to allow the government to meet mostly its existing commitments. She will be hoping that the OBR’s view will have a positive impact on the narrative around how she and the government are doing, but there is still much that could change between now and 2029.
Economic and fiscal outlook – November 2025 – Office for Budget Responsibility