Autumn Budget 2025: Background briefing

On 26 November 2025, the Chancellor, Rachel Reeves, will deliver the 2025 Autumn Budget. The Chancellor says the Budget will “deliver on the priorities of the British people: Cutting NHS waiting lists, cutting the national debt and cutting the cost of living.”

The Office for Budget Responsibility (OBR) will publish revised forecasts for the economy and public finances on the same day as the Budget statement. The OBR is the independent public finances watchdog.

Economic situation

The UK economy has been expanding at an annual rate of around 1.5% on average from mid-2024, with gross domestic product (GDP) growth slowing over the course of 2025. GDP is 5.3% higher than it was before the covid-19 pandemic nearly six years ago, but GDP per head is only 0.8% higher over the same period. This modest growth has in part been due to weakness in consumer spending.

The OBR seems likely to reduce its forecasts for how fast the economy can grow sustainably over the medium and long term. This is sometimes described as the ‘speed limit’ of the economy and is in large part determined by growth in productivity (how much is produced for every hour worked).

The OBR has been persistently over-optimistic about productivity growth, which has slowed sharply since the global financial crisis of 2007 to 2009. The OBR is now set to cut its productivity growth forecasts. In turn, this likely means its forecasts for GDP growth and tax revenues will be lowered.

Inflation has risen from a recent low of 1.7% in September 2024 to 3.6% in October 2025, well above the Bank of England’s 2% target. However, economists expect it to fall under 3% over the next year. Meanwhile, unemployment has been rising and the amount of job vacancies increasing, suggesting a weakening labour market.

Public finances Government borrowing

Both government spending and revenue from taxes and other receipts are relatively high by UK standards. With government spending being the higher of the two, the government is borrowing to fund around 10% of its spending. The government borrows in most years, but the current level of borrowing is also relatively high.

Increases in spending – particularly on staff and debt interest – mean that the government is borrowing around twice as much as it was before the covid-19 pandemic. This is despite tax revenues being higher than before the pandemic, driven by growth in income tax revenues.

source: OBR. Public finances databank - October 2025

Government debt

The government’s debt, which is largely the stock of its past borrowing, is equivalent to around 95% of UK GDP. Debt was last consistently above 95% in the early 1960s, when it was still coming down following the Second World War.

source: OBR. Public finances databank - October 2025

Debt interest and borrowing costs

The government’s spending on debt interest for its existing stock of debt has more than doubled since 2019/20. £1 in every £12 the government spends is currently on debt interest.

For new borrowing, investors require higher interest (or yield) to lend to the government than pre-2022. The UK’s borrowing costs have increased significantly since 2021 (as we would expect with interest rates being high), both in their own terms and relative to other countries.

The Budget could lead to lower borrowing costs if these investors (often described as ‘financial markets’) are convinced that it is a credible plan for reducing government borrowing and meeting the government's fiscal rules.

Sources: ONS Series NMFX, MU74, BKTL;OECD, Financial market (accessed on 13 November 2025)

Meeting the fiscal rules

The government has targets for its day-to-day budget and its net financial debt in 2029/30, widely known as the Chancellor’s ‘fiscal rules’.

The rules were being met by a small margin, or ‘headroom’ when the OBR assessed them in March 2025. Events since then mean that this headroom is likely to have disappeared in the upcoming forecast, before any of the Chancellor’s policies are included.

Source: OBR, Economic and fiscal outlook – March 2025, Chart 7.2

Economists say the OBR’s likely downgrade to productivity growth (as described above) will reduce the headroom quite significantly. The government has also halted plans to reduce spending on disability benefits, savings that were included in the OBR’s March 2025 forecast. The means-testing of winter fuel payments has also been relaxed, which means higher spending than previously forecast.

However, the OBR’s forecast has many moving parts, which makes the outcome very difficult to predict. For instance, the OBR’s forecast for wages could improve, which would lead to higher forecast tax receipts for the government.

Overall, it’s likely that the Budget will need to increase taxes and/or lower spending to ensure that the fiscal rules are met. The Chancellor may also decide to increase the fiscal rules’ headroom by taxing more or spending less to give greater protection against relatively small changes in the economy and provide greater certainty for investors.

Reducing borrowing

Most speculation about how the Chancellor plans to lower borrowing, and meet her fiscal rules, has focused on taxes. The Chancellor says she is looking at both taxes and spending in the Budget.

Increasing taxes

The additional revenue that can be raised from the UK’s four largest taxes is potentially limited by Labour’s tax pledges during the 2024 general election campaign. Labour’s manifesto said it “will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.” The manifesto also pledged to cap corporation tax at its current rate of 25%.

The Chancellor may, therefore, look to raise the revenues she needs by increasing several smaller taxes.

Economists would like to see the Chancellor taking steps to improve the design of the UK tax system. Many economists argue that the UK tax system needs reform.

Lower spending

Previous governments have often reduced investment (capital) spending in search of savings. This isn’t an effective option for the Chancellor, as investment spending isn’t included in her day-to-day budget rule.

Departments’ spending plans were set up to 2028/29 in the June 2025 Spending Review. These plans could be changed, but it would be unusual to change the plans only a few months after they were made.

The Chancellor could “pencil in” lower day-to-day spending in 2029/30 to meet her fiscal targets, which apply in that year. Spending plans for 2029/30 are already less generous than in earlier years, making further reductions potentially difficult to deliver in the context of increasing pressures on public spending.

Some economists question whether pencilling in spending cuts would be seen as credible, particularly by the investors lending to the government.

The government proposed changes to disability benefits ahead of the 2025 Spring Statement. These policies have now been dropped because they didn’t receive sufficient support in Parliament. The Chancellor might look to make savings elsewhere from the welfare budget, which makes up over a quarter of the government’s day-to-day spending.

Further information

The Commons Library will publish a summary of the Budget on the evening of 26 November 2025.

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.

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