Remember that moment when you open a bank statement and realise you’ve somehow spent far more than you thought? That’s pretty much how most economists felt watching the Autumn Budget unfold last week.
The numbers are brutal, the choices are painful, and the long-term plan… well, let’s just say it’s heavily dependent on some very optimistic hoping.
A Budget That Chooses Spending Over Growth
At its core, this was a political budget wearing economic clothing. The government needed to find money for public services, calm its restless backbenchers, and avoid immediate spending cuts. The solution? Raise taxes massively now, promise restraint later, and borrow the gap.
The headline figure – an extra £26 billion in annual tax revenue by 2029 – actually understates the shift. When you add last year’s increases, we’re looking at something close to £60 billion of extra taxation in just two years. That’s not tinkering. That’s transformational.
The Tax Take Hits Record Territory
Perhaps the most striking chart from the whole event was buried deep in the Office for Budget Responsibility documents: tax revenue heading to 38% of GDP – higher than any point in British history.
Think about that for a second. Higher than during the post-war reconstruction. Higher than under Gordon Brown’s spending splurges. Higher than anything Clement Attlee or Harold Wilson ever managed. We’re in genuinely uncharted territory.
“This takes Britain into European-style tax levels without European-style public services or growth rates of economic growth”
– Senior economist at a leading think tank
Where Is All This Money Going?
The honest answer is: mostly current spending, not investment.
Yes, there’s an increase in public investment – welcome after years of neglect – taking it to 2.6% of GDP. But the vast chunks are going on day-to-day spending: more NHS funding (though waiting lists barely moved last time), higher welfare payments, and public sector pay awards that have consistently exceeded inflation.
- Day-to-day public spending rising by £70bn annually within three years
- Debt interest payments heading toward £100bn a year
- Public sector net borrowing staying above £100bn annually for the foreseeable future
In my view, this represents a fundamental political choice: prioritise current consumers of public services over future growth and opportunity. It’s understandable politics, perhaps. But it’s terrible economics.
The Growth Problem Nobody Wants to Address
Here’s what really kept me up reading the documents: the OBR looked at every single policy in this Budget and concluded none of them were significant enough to change their growth forecast.
Let that sink in. After all the rhetoric about “fixing the foundations” and “rebuilding Britain”, the independent forecaster basically shrugged and said: “Nice words, but nothing here moves the needle on GDP growth.”
They actually upgraded this year’s growth forecast to 1.5%, which sounds positive until you realise they’re cutting the outlook for every subsequent year. By 2029, they expect just 1.5% growth – lower than they thought in March.
“The overall forecast remains one of persistently weak growth by historical standards”
Office for Budget Responsibility, Autumn 2025
The Most Damaging Measures
Some decisions feel particularly self-defeating.
The three-year extension of the personal allowance freeze will drag millions more into higher tax bands through fiscal drag – the stealthiest and most regressive tax rise imaginable. Combined with changes to capital gains, dividend tax, and inheritance tax, we’re creating a tax system that actively punishes saving and investment.
Then there’s the pension relief changes. Limiting salary sacrifice arrangements might raise £4-5bn, but at what cost? Every employer I’ve spoken to says this will make their payroll costs higher and their pension offerings less attractive. In a country with a chronic savings problem, this feels like solving one issue by creating three more.
- Minimum wage rising sharply from April – good for workers, challenging for small businesses
- Employment allowance frozen – another hidden hit to smaller employers
- Non-dom regime tightened further – accelerating the exodus of mobile wealth
- Private school VAT from January – because nothing says “aspiration” like taxing education
Debt Trajectory Should Terrify Everyone
Perhaps the scariest chart shows public sector net debt heading toward 96% of GDP by the end of the decade. That’s double the advanced economy average.
We’re not in crisis territory yet – Japan manages with far higher debt – but we’re certainly in “be very careful” territory. Especially when debt interest is already the fourth largest area of public spending after health, education, and pensions.
What’s remarkable is how calm markets have remained. Gilt yields barely moved. Perhaps investors are giving the new government the benefit of the doubt. Or perhaps they’re waiting to see whether those promised future spending restraints ever materialise.
Are There Any Silver Linings?
To be fair, not everything was terrible.
The increase in fiscal headroom to £22 billion is genuinely sensible – last year’s buffer was comically small. Some business tax reliefs were extended, and there are vague promises about planning reform and nuclear regulation that could help if actually delivered.
The commitment to higher public investment is welcome, even if the overall spending mix is wrong. Britain has under-invested in infrastructure for decades, and fixing that matters.
But these feel like minor concessions in a budget whose central message is: we’re going to tax more, spend more, and hope something turns up on growth.
What Happens Next?
The honest answer is probably several years of mediocre growth, rising tax burden, and gradually increasing pressure on public finances.
The government is betting that stability will encourage business investment and consumer confidence. Possible. But businesses don’t invest because governments are stable – they invest when they see opportunity and when the tax system encourages rather than punishes success.
Maybe artificial intelligence will ride to the rescue with a productivity boom. Maybe planning reform will finally unlock housebuilding. Maybe pigs will fly.
More likely, we’ll look back on 2025-2030 as the years when Britain chose managed decline over genuine economic reform. Higher taxes funding higher spending with no serious supply-side agenda isn’t a growth strategy. It’s a holding pattern.
And holding patterns, as any pilot will tell you, eventually run out of fuel.
The tragedy is that with its massive majority, this government had the political capital to make tough but necessary choices – genuine welfare reform, serious public sector productivity improvements, bold tax simplification. Instead, it chose the path of least resistance.
Whether that path leads to re-election in 2029 feels increasingly doubtful. Whether it leads to national prosperity feels even less likely.
In twenty years of watching budgets, I’ve rarely seen one that felt quite so much like kicking the can down the road while making the road itself narrower and full of potholes. Time will tell whether this was pragmatic governance or the beginning of Britain’s long economic stagnation.
My money’s on the latter.
