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Autumn Budget 2026: Background briefing

On 28 October 2026, John Healey will present his first Budget as Chancellor.

The Chancellor has said the Budget will move “money and power out of Westminster, and into every postcode around Britain”. He has also said that the Budget will meet the fiscal rules, control borrowing to lower inflation and reduce long-term pressures on the public finances.

The Chancellor says the Budget will include plans “to give families and businesses a bit of breathing space” following the rise in prices since the start of the current Israel/US conflict with Iran.

The Office for Budget Responsibility (OBR), the independent public finances watchdog, will publish revised forecasts for the economy and public finances on the same day as the Budget statement. Its five-year forecast will extend to 2031/32 for the first time.

The OBR’s previous (March 2026) forecast was finalised before conflict escalated in the Middle East. The OBR acknowledged that the escalating conflict “could have very significant impacts on the global and UK economies”.

Economic situation

Although it has been faced with higher energy prices because of the conflict in the Middle East, the UK economy has been described as “resilient” by many observers. GDP growth has been relatively upbeat, with the UK recording the joint-fastest growth in the G7 (alongside the US) over the first half of 2026.

The economy has been supported by strong growth in the information and communications technology sector, with many analysts attributing this to the increased rollout and adoption of AI in the UK.

Inflation has been higher than was forecast before the Middle East conflict escalated. With oil and gas prices remaining high, inflation is forecast to rise above 4% in early 2027. Against this backdrop, the Bank of England is now expected to raise interest rates, for the first time in 2026, in an effort to bring inflation down to the 2% target.

Sources: ONS, CPI annual percentage change, series D7G7, monthly data up to Sep 2026; Bank of England, Monetary Policy Reports, February 2026 and July 2026; Bank of England, MPC minutes, 17 September 2026

The government has announced several “everyday fixes” on the cost of living, such as temporarily removing the 5% VAT on domestic electricity bills and capping bus fares in England. With a large increase in household energy bills projected in January, support for some households is expected to be announced in the Budget.

Revisions to past data indicate that the UK’s productivity slowdown since the financial crisis of 2007 to 2009 was less severe than previously thought. In addition, recent data suggests tentative signs of an upturn in productivity growth.

Public finances

Government borrowing and debt

In 2026, both government spending and revenue (from taxes and other receipts) are relatively high by UK standards. Government spending is higher than revenue, so the government is borrowing to fund around 8% of its spending.

source: OBR, Public finances databank – September 2026

The government borrows in most years, but the current level of borrowing is also relatively high. Increases in spending – particularly on debt interest – mean that the government continues to borrow more than it was before the covid-19 pandemic.

sources: Office for National Statistics (ONS), Public sector finances borrowing by sub-sector: Appendix R, 22 September 2026; ONS, series BKTL

Government borrowing was falling in each year of the OBR’s previous forecast, largely due to rising government revenues, particularly from income tax.

The government’s debt, which is largely the stock of its past borrowing, is equivalent to around 94% of UK GDP. Debt was last consistently above this level in the early 1960s, when it was still coming down following the Second World War.

source: OBR, Public finances databank – September 2026

Debt interest and borrowing costs

The government’s spending on debt interest has more than doubled since 2019/20. £1 in every £13 the government spends is currently on debt interest. Spending is higher due to higher interest rates and inflation.

For new borrowing, the government is paying higher rates of interest that it did before 2022. The UK’s borrowing costs have increased significantly since 2021 (as we would expect with interest rates being high). They have risen further since the start of the current Israel/US conflict with Iran, although not as fast as in some developed economies, such as France and the US.

sources: ONS Series NMFX, MU74, BKTL; OECD, Financial market (accessed on 20 October 2026)

The fiscal rules

The government has targets for its day-to-day budget and its net financial debt in the third year of the OBR’s forecast, which will be 2029/30 in its October forecast. The targets are widely known as the Chancellor’s ‘fiscal rules’.

The Chancellor is committed to meeting the fiscal rules in the Budget with “a buffer to protect against uncertainty”. Whether he needs to raise taxes or lower spending to do so will depend on how changes in the economy and public finances affect the OBR’s forecast. It’s highly likely that the government’s debt interest spending will increase because of higher inflation and interest rates. It’s less clear how other factors like earnings growth, economic growth and migration will collectively affect the forecast.

source: OBR, Economic and fiscal outlook, November 2025, chart 7.1

Tax issues

If the Chancellor wants to raise more tax revenues, perhaps to fund new priorities or to meet the fiscal rules by a reasonable margin, he may need to increase some of the UK’s smaller taxes. Labour’s manifesto says it will not increase taxes on working people, so it “will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.” These are the UK’s largest, broad-based, taxes.

Alongside the Budget, the government is expected to publish a fiscal devolution roadmap. This will set out plans to allocate a share of local taxes to mayors and other local leaders.

The government will also set how it will prevent pensioners whose sole income is the basic or new state pension from paying income tax from 2027/28. 

Public spending issues

Departmental spending, decided at the 2025 Spending Review, is generally set to increase in the next few years, but growth is slowing. Many departments face tighter budgets in later years of the Spending Review period, which ends in 2028/29.

Source: HM Treasury, Public Expenditure Statistical Analyses 2026, 16 July 2026, table 1.9; calculated using nominal GDP forecasts from the OBR’s Public finances databank

The government sets spending plans for departments at periodical Spending Reviews. No date has been announced for the next Spending Review but given that the most recent one was in June 2025, the next must take place at some point during 2027.

The Budget is expected to address how the remainder of the Defence Investment Plan (currently partly funded) will be financed.

By 2030/31, welfare spending is forecast to be around 0.3% of GDP higher than in 2024/25. The rising costs of health-related and pensioner benefits are the main drivers of the forecast increase in welfare spending.

The government has already announced that it will adjust the state pension triple lock from 2030. This will dampen the effect of a key long-term driver of spending on pensioner benefits.

Further information

The Commons Library will publish a summary of the Budget on the evening of 28 October 2026.

The Library briefing’s What is the Budget? and The Budget and the annual Finance Bill examine the way that Parliament scrutinises the government’s proposals for taxation, set out in the annual Budget statement.

Before the Budget, the Treasury invites 'representations' on policy for the government to consider. The Commons Library briefing Budget 2026 representations: Reading list collates the publicly available representations.

All the Commons Library’s Autumn Budget briefings are available together on our website.