The UK is on course for levels of tax, spending and debt not seen for many years, together with a sharp fall in migration, according to the latest economic forecasts published alongside the 2026 Budget.
The Office for Budget Responsibility (OBR) predicts the tax burden will "increase sharply" from 36.0% of GDP in 2025/26 to a new record of 37.9% in 2027/28, then continue to climb to reach a peak of 38.6% of GDP in 2031/32. This is nearly six percentage points above the pre-pandemic figure of 32.9% in 2019/20 and is the highest level since current records began in 1948.
The "single largest driver" of the increase is rising income tax and national insurance contributions, "especially with personal tax thresholds frozen", the OBR said. The Government has frozen the level at which higher rates of income tax start to be paid, meaning that as wages increase, more people have to pay more tax on their earnings.
Living standards growth at record low
The level of real household disposable income (RHDI), a measure of living standards, has shown "historically weak growth" since the global financial crisis of 2008 and 2009, the OBR said. Growth in RHDI slumped to a record low in the decade to 2025/26, averaging 0.3% per person per year.
This is now forecast to fall even further, averaging only 0.1% in the 10 years to 2029/30. It means that at the end of this decade, RHDI per person is expected to be just 1% higher than pre-pandemic levels. While earnings and social security benefits have boosted household incomes in recent years, these have been outweighed by higher prices, together with taxes on income and wealth, the OBR added.
Debt and spending levels
The headline measure of public sector net debt, which includes the Bank of England, is forecast to climb from the equivalent of 93.1% of GDP in 2025/26 to 97.3% in 2028/29. This level of debt was last seen at the end of the financial year 1962/63, when it stood at 98.2% of GDP. The volume of debt is forecast to continue rising in every year of the OBR forecast, passing £3 trillion for the first time in 2026/27 and reaching £3.70 trillion by 2031/32.
Total government public spending is forecast to remain at the equivalent of between 44% and 46% of GDP for 10 financial years in a row, around five percentage points higher than before the Covid-19 pandemic. This represents the longest sustained period of spending at this level since the Second World War. The forecast suggests spending will not fall below the equivalent of 44% of GDP in each year from 2022/23 to 2031/32 inclusive, surpassing the two other post-war periods when spending was at this level or above.
Migration and welfare spending
Net migration to the UK is forecast to fall close to numbers seen during the Covid-19 pandemic. The level of net migration is now forecast to be 120,300 in the year to June 2026, compared with 200,000 in the previous forecast in March. Migration is then forecast to fall to 114,300 in the year to June 2027, nearly 100,000 lower than the previous forecast of 203,400. This is close to the figure of 111,000 for the 12 months to June 2020.
The fall in migration is likely to reflect a decline in people from outside the European Union coming to the UK for work-related reasons, following policy changes introduced by the previous Conservative government and continued by the current Labour administration. There have also been fewer arrivals through official humanitarian resettlement schemes, as well as an increase in people moving out of the country. Migration levels are likely to increase slowly from 2028 onwards, settling at 230,000 in the early 2030s.
Government spending on health and disability benefits is now likely to reach a record £100 billion a year earlier than previously forecast, with spending reaching £105.0 billion in 2028/29, up from £85.6 billion in 2025/26. The OBR says there is "uncertainty" around the outlook for welfare spending, with total welfare spending increasing from £333.8 billion in 2025/26 to £431.3 billion in 2031/32. If cases were to continue to rise at the post-pandemic growth rate, "this could add around £25 billion to welfare spending by 2031/32", the OBR said, while if cases slowed to pre-pandemic rates, spending could be around £13 billion lower.
