#publicfinances – Martin Wheatcroft

ICAEW charts of the week 2026

Every week I prepare a chart on the economy or the public finances for the Institute of Chartered Accountants in England and Wales.

For the latest chart visit the ICAEW website.

Chart of the week: more people living longer

Our chart this week looks at how the number of people aged 65 or older is projected to increase by 34% over the next 25 years in contrast with a projected rise of just 1% in the number of working age adults. This will be a major challenge for the UK’s public finances.

Chart of the week: home living

Our chart this week is on how people in the UK still live in broadly the same type of households as they did 25 years ago, despite the population growing by 18% over that time.

Chart of the week: a £3tn economy

Our chart this week is on how GDP for the UK reached £3.0tn for the first time in 2025. This is a 58% increase over the course of a decade, mostly driven by a combination of inflation and a rising population, resulting in a relatively small amount of per capita economic growth.

Chart of the week: international trade

This week’s chart illustrates how a £205bn surplus on trade in services was offset by a £243bn deficit on trade in goods to result in a net trade deficit of £38bn in 2025 – or £16bn if trade in precious metals is excluded.

Chart of the week: council tax in England 2026/27

Our chart this week celebrates the start of a new financial year by looking at the average level of council tax across England.

Chart of the week: public investment

Our chart this week looks at how public investment in assets is expected to increase over the next couple of years as the government seeks to stimulate the economy and “build build build”.

Chart of the week: educational decline

Our chart this week looks at how school rolls in England are projected to decline by 7% in state nurseries and primaries and 3% in state secondaries over the next five years, and what that means for school closures and mergers across the country.

Chart of the week: Spring Forecast 2026

Our chart this week looks at how the Chancellor’s fiscal headroom increased by £2bn to £24bn in the latest fiscal forecast from the Office for Budget Responsibility.

Chart of the week: student loans

Our chart this week looks at how the Department for Education has impaired 40% of the value of its student loans outstanding as at 31 March 2025.

Chart of the week: Real average pay in the UK

Our chart this week illustrates how UK average total pay fell by 0.2% in real terms over the 12 months to December 2025, following much stronger growth in the previous two years.

Chart of the week: business births and deaths in the UK

Our chart looks at the cycle of business life since 2017, as the number of business births exceeded business deaths in 2025 for the second year in succession.

Chart of the week: quarterly public sector finances

This week’s chart looks at how the government is relying on a strong inflow from self-assessment and employee bonuses to meet its revised fiscal targets for the financial year to March 2026.

Chart of the week: global stock markets

Our chart looks at how the top 10 stocks from nine companies made up more than a fifth of global stock market values on 31 December 2025.

Chart of the week: Australian Government balance sheet

Our chart marks Australia Day by looking at the federal government balance sheet over the last decade.

Chart of the week: A peak in the civil service?

Our chart looks at civil service numbers given that restructuring is in the air in Whitehall. Will the government really be able to deliver on its plans to cut administration costs and civil service headcount over the coming three years?

Chart of the week: Budget 2025 Fiscal Insight

Our chart this week returns to the scene of the Budget as we publish an in-depth analysis of its effect on the public finances and how it was ‘all about the headroom’.

Visit ICAEW News for the latest updates on accounting, finance and tax.

ICAEW chart of the week: Net migration

Our chart this week illustrates the fall, rise and fall again of net inward migration over the past eight years and asks whether it will bounce back to hit the OBR’s long-term assumption by the end of the decade.

The eight-year period presented in our chart this week has seen significant change in the movement of people to and from the UK. The end of free movement for citizens of EU and EFTA countries (other than Ireland) after Brexit was followed by the introduction of a points-based immigration system, disruption to international movements of people caused by the pandemic, the resettlement of significant numbers of Ukrainians, Afghans and Hong Kong British Overseas Subjects, and then a clamp-down on immigration at the end of the last government that has continued under the current government.

These factors can be seen in the provisional and otherwise heavily caveated numbers from the Office for National Statistics (ONS) illustrated by the chart. Overall net inward migration fell from 216,000 and 224,000 in the years to June 2018 and 2019 to 111,000 in the year to June 2020, rose to 251,000, 681,000 and 924,000 in the years to June 2021, 2022, and 2023 respectively, and then fell to 649,000 and then 204,000 in the years to June 2024 and 2025. A net total over eight years of 3,260,000 additional people living in the UK.

Not shown on the chart are the gross totals for immigration and emigration over the eight years to June 2025, with the former adding up to +7,962,000 (757,000, 821,000, 736,000, 818,000, 1,167,000, 1,467,000, 1,299,000 and 897,000 respectively) and the latter to -4,702,000 (541,000, 597,000, 625,000, 567,000, 486,000, 543,000, 650,000 and 693,000).

The chart highlights net inward migration from outside the European Union single market area was a key driver over the eight years to June 2025 with 3,683,000 net additions to the UK population (142,000, 180,000, 115,000, 243,000, 750,000, 1,045,000, 825,000, and 383,000 respectively). Over the same period, net immigration from the EU and EFTA countries turned into net emigration, reducing the net additions to the UK population to 287,000 (+158,000, +126,000, +70,000, +95,000, -1,000, -30,000, -61,000 and -70,000), while there was a contraction and then expansion in the 710,000 net number of Brits leaving the UK to live abroad (84,000, 82,000, 74,000, 87,000, 68,000, 91,000, 115,000, and 109,000).

The large rise and then sharp fall in net inward migration in the last five years of the chart up to June 2025 was mainly driven by those coming from outside the EU and EFTA. Net inward migration in this group for work-related reasons (including dependents) increased and then fell over the five years to June 2025 (59,000, 184,000, 359,000, 381,000, 107,000), while those arriving for study-related reasons (including dependents) also rose and fell (59,000, 265,000, 382,000, 244,000, 144,000).

Net long-term arrivals under resettlement schemes, principally from Hong Kong, Afghanistan and Ukraine, also rose and fell in the five years to June 2025 (10,000, 151,000, 125,000, 52,000 and 21,000), while the net inflow of asylum seekers increased over the same period (38,000, 70,000, 84,000, 77,000 and 90,000).

The chart includes the OBR’s long-term assumption in Budget 2025 for net inward migration to recover to 340,000 a year by the end of the five-year forecast period in 2030/31. As the OBR calculates that most immigrants make a net positive contribution to the UK economy in the years following their arrival, a lower net inflow of people into the UK than projected could have an adverse impact on the amount of headroom the Chancellor has against her fiscal rules.

So, while ministers and civil servants at the Home Office may be congratulating themselves about the sharp fall in the number of people coming to live in the UK, their colleagues at HM Treasury may be less cheerful.

ICAEW chart of the week: Budget 2025 debt blues

My chart for ICAEW this week illustrates how despite being a “tax-raising Budget”, the cumulative net effect of all the changes announced last week is to add £61bn to the public sector net debt forecast for 31 March 2030.

While my chart for ICAEW last week looked at the impact of Budget 2025 on 2029/30, the fourth year of the fiscal forecast used for the Chancellor’s fiscal rules, this week’s focus is on the cumulative effect of the changes made between now and 31 March 2030.

The first four bars of our step chart analyse the OBR’s forecast revisions, starting with extra borrowing to fund the expected budget overrun in the current financial year (2025/26) of £18bn (technically a £21bn higher deficit less a £3bn opening adjustment). This is followed by more borrowing to fund higher local authority spending of £26bn over four years (an average of £6.5bn a year) and to cover cumulative lower receipts of £35bn from downgrading the productivity growth assumption (£2bn a year rising to £16bn by 2029/30). This is then offset by £28bn over four years from the impact of inflation and wage growth on receipts exceeding the impact of inflation and other cost pressures on public spending.

Borrowing over the next four years is then increased by £19bn (just under £5bn a year on average) to cover the government’s welfare reversals over the summer – the restoration of the winter fuel allowance to many pensioners and the decision not to proceed with eligibility restrictions for disability benefits that were needed to make the Spring Statement add up.

The decision to lift the two-child benefit cap adds another £10bn (£2.5bn a year on average) to projected debt over the next four years, while other policy measures and working capital movements are expected to add £17bn (£11bn and £6bn respectively) on top of that.

A £36bn net reduction in debt from higher tax receipts net of indirect effects over the next four years (zero in 2026/27, £4bn in 2027/28, £10bn in 2028/29, and £22bn in 2029/30) reduces the cumulative impact to £61bn, with the £3,391bn forecast for 31 March 2030 at the time of the Spring Statement back in March 2025 being revised up to £3,452bn in the Autumn Budget 2025.

Perhaps the most surprising aspect of this analysis is the £26bn revision to the forecast for local government spending. While not as large as the well-publicised impact of productivity downgrades on the OBR’s fiscal forecast, it highlights some fundamental bookkeeping issues in how the government manages the public finances. A monthly financial consolidation process that excludes local government, schools and many other public bodies means the Office for National Statistics (ONS) and HM Treasury rely on forecasts and estimates instead of actual data when reporting the monthly public sector finances, exacerbated by the use of the four different accounting frameworks across the public sector and the local audit crisis in England that has created a large backlog in local authority audited financial statements.

The OBR states: “Recent substantial revisions to LA borrowing estimates and outturns, which reflect ongoing challenges in obtaining timely and high-quality estimates particularly for expenditure by local authorities. The ONS, the Ministry of Housing, Communities and Local Government, the Treasury and the OBR have formed a joint Local Government Financial Information Taskforce to investigate and address these concerns, with the overall objective of improving the flow of data to the ONS and the accuracy of our forecast.”

Meanwhile, the backloading of tax rises means that although the forecast is for a current budget surplus in 2029/30 and for a reduced overall deficit in that year, the summer welfare reversals, lifting of the two-child benefit cap, and other policy changes all require more borrowing before the tax rises kick in.

The 2025 Budget provides very mixed messages about the UK public finances’ prospects. There is more borrowing over the next three years before tax rises fully kick-in, while at the same time there are significant risks that mean the government could be back here again next year or the year after to ask for more money.

If ever a Chancellor could really do with some good economic news, it is probably in the coming year.

This chart was originally published by ICAEW.

ICAEW chart of the week: Autumn Budget 2025

My chart this week for ICAEW looks at how the Chancellor used tax rises to refill and increase her budget headroom after forecast revisions and spending increases eliminated the projected current budget surplus for 2029/30.

The chart shows how the projected current budget surplus of £10bn in 2029/30 was reduced by £6bn of Office for Budget Responsibility (OBR) forecast revisions, by £5bn of spending increases announced in the Autumn Budget, and by £1bn from the freezing of fuel duties for yet another year.

Together these reduced the Chancellor’s headroom against her primary fiscal rule (to be in a current budget surplus by the fourth year of the fiscal forecast) from £10bn to minus £2bn – in effect breaching her fiscal rule before taking account of tax rises.

The Chancellor has then restored – and increased – her fiscal headroom to £22bn through a long list of tax rises that are anticipated to generate £24bn more in receipts in 2029/30.

Forecast revisions

The rumoured forecast downgrade from the OBR of £6bn in 2029/30 turned out to be much less significant than expected.

The OBR cut its receipts forecast for 2029/30 by £16bn a year because of weaker assumed productivity growth. But this was more than offset by a £30bn increase from higher nominal wages and prices, driven by both inflation and real wage growth, to add £14bn to receipts in that year – an increase not a decrease to the receipts side of the forecast.

This was offset by £20bn in higher current spending, of which £6bn was from higher uprating of welfare benefits and growth in claimants and caseloads, £6bn from government policy reversals on the winter fuel allowance and disability benefits, £4bn in higher debt interest, £2bn in higher local government spending, and £2bn in other changes.

The resulting deterioration of £6bn in the projected current budget surplus for 2029/30 was £14bn smaller than the £22bn deterioration anticipated by the Institute for Fiscal Studies (IFS) in its pre-Budget forecast (as used in our chart of the week on the Autumn Budget hole). The principal driver was £22bn in incremental receipts from higher inflation and higher real wage growth less £6bn in higher spending for similar reasons.

Because departmental budgets for 2026/27, 2027/28 and 2028/29 set out in the Spending Review earlier this year have not been increased for this higher level of inflation, the risk is that future Budgets will need to top up the amounts allocated to departments to deal with cost pressures that are likely to arise.

Spending increases

Current spending is projected to increase by £5bn in 2029/30, comprising £3bn to cover the annual cost of abolishing the two-child benefit cap, £1bn in higher debt interest, and £1bn in net other changes in non-interest current spending.

The OBR also announced that it had reduced its underspend assumption for departmental budgets during the latest spending review period (2026/27 to 2028/29 for current spending) by an average of £4bn a year to reflect the increased pressures on budgets from higher inflation. There was no similar adjustment to 2029/30 current spending as it is not covered by the spending review, but there is a risk that a similar adjustment may be needed by the time of the 2027 spending review.

Fuel duty freeze

Freezing fuel duties has become a consistent feature of Budgets since 2011, with the effect of reducing annual tax receipts in real terms by just under £1bn a year.

Given the current Chancellor has chosen to continue this practice in two successive Budgets, it is disappointing that fiscal forecasts have not reflected the anticipated £3bn additional reduction in tax receipts in 2029/30 if fuel duty is frozen again in the next three Budgets.

Tax rises

The Chancellor announced a total of £27bn in tax rises in the Budget (£26bn if the fuel duty freeze effective tax cut is netted off), but this is expected to generate £24bn in incremental tax receipts once behavioural responses and other indirect economic effects are adjusted for.

These tax rises are expected to generate the following amounts per year by 2029/30:

£8bn from extending the freezing of personal allowances (more ‘fiscal drag’).
£5bn from restricting the use of salary-sacrifice schemes to make pension contributions.
£2bn from increased income tax rates on property, savings and dividends.
£1.5bn from changes to writing-down allowances.
Just under £1.5bn from a mileage-based charge on electric cars.
Just over £1bn from gambling duty reform.
Just under £1bn from capital gains tax on employee ownership trusts.
Just under £0.5bn from a high value council tax surcharge.
Around £4.5bn from other tax measures.
£2bn from improved tax compliance and collection.

Higher headroom

The Chancellor chose to increase headroom against her principal (current budget) fiscal rule from £10bn last year to £22bn and to increase headroom in her secondary (debt) fiscal rule from £15bn to £24bn.

These are both positive in that they provide a much bigger cushion against potential forecast downgrades in the spring or autumn next year, reducing the risk of another round of significant tax rises in the Chancellor’s third Budget in 2026. It also helps that she is likely to gain around £15bn of extra headroom as the main fiscal rule moves to being tested in the third year of the forecast, which comes with a margin of permitted current budget deficit up to a maximum of GDP.

However, significant downside risks remain, so this outcome is far from assured. The Chancellor still faces the challenge of reviving a weak economy and delivering substantial efficiency savings if she is to keep public spending under control in the absence of more fundamental reform. That task is made harder by the risk of bailouts for local authorities and universities, and by continued pressure on the welfare budget.

This chart was originally published by ICAEW.

Public finances continue to disappoint ahead of the Budget

The cumulative budget overrun has widened from £7bn to £10bn in seven months, reveals latest data from the Office for National Statistics.

The monthly public sector finances release, published by the Office for National Statistics (ONS) on 21 November 2025, reported a provisional shortfall between receipts and public spending of £17bn in October and a cumulative deficit of £117bn for the seven months then ended.

Martin Wheatcroft, external adviser on public finances to ICAEW, says: “The monthly public finances continue to disappoint, with the cumulative budget overrun widening from £7bn in the last release to £10bn for the seven months to October.

“While only slightly worse than expected, there were no rays of sunshine in these numbers for a beleaguered Chancellor trying to navigate her way through a series of political, economic and fiscal minefields surrounding the Autumn Budget.”

Month of October 2025

There was a £17bn shortfall between provisional receipts of £96bn and total public spending of £113bn in October 2025. This was £2bn better than the £19bn deficit incurred in October last year (£89bn receipts less £108bn total spending), but £3bn more than the budget of £14bn for the month.

Current spending of £108bn and net investment of £5bn in October were both in line with the £108bn and £5bn monthly averages incurred respectively during the first six months of the financial year.

October’s semi-annual advance tax payments meant that public sector net debt fell by £12bn during the month (from £2,917bn on 30 September to £2,905bn on 31 October 2025), with a net inflow of £29bn from working capital movements and lending activities more than offsetting the £17bn absorbed by the deficit.

Seven months to October 2025

The provisional £117bn deficit for the seven months to October 2025 was £9bn or 8% more than in the same seven months last year, and £10bn more than the £107bn that was budgeted. The £10bn overrun can be analysed as a £15bn adverse variance on the current budget deficit, offset by a £5bn underspend on net investment.

Table 1 highlights how year-to-date receipts of £672bn were 7% higher than the same period last year, with income tax up 8% from a combination of inflation and fiscal drag from frozen tax allowances. National insurance was up 19% as a result of the increase in employer national insurance from April 2025 onwards, and VAT receipts were up 4%, broadly in line with consumer price inflation.

Compared to last year, the 8% increase in spending to £756bn in the first seven months to October 2025 has principally been driven by public sector pay rises, higher supplier costs, the uprating of welfare benefits and higher debt interest.

Debt interest of £88bn was £9bn higher than for the first seven months of 2024/25, comprising a £7bn increase in indexation on inflation-linked debt as inflation rose again in 2025 and a £2bn increase in interest on variable and fixed-interest debt. The latter reflects a higher level of debt compared with a year ago, offset by a lower Bank of England base rate.

Net investment of £33bn in the first seven months of 2025/26 was £2bn or 6% higher than the same period last year. This comprised capital expenditure of £55bn (up by £2bn or 4%) and capital transfers (capital grants, research and development funding and student loan write-offs) of £20bn (up £2bn or 11%), less depreciation of £42bn (up by £2bn or 5%).

Table 1: Summary receipts and spending

7 months to Oct	2025/26 £bn	2024/25 £bn	Change
Income tax	167	154	+8%
VAT	122	117	+4%
National insurance	114	96	+19%
Corporation tax	60	56	+7%
Other taxes	135	130	+4%
Other receipts	74	73	+1%
Current receipts	672	626	+7%

Public services	(424)	(393)	+8%
Welfare	(181)	(171)	+6%
Subsidies	(21)	(20)	+5%
Debt interest	(88)	(79)	+11%
Depreciation	(42)	(40)	+5%
Current spending	(756)	(703)	+8%

Current deficit	(84)	(77)	+9%

Net investment	(33)	(31)	+6%

Deficit	(117)	(108)	+8%

Budget for the rest of the financial year

The deficit is budgeted to be £118bn for the full year ending 31 March 2026, comprising £107bn in the first seven months of the year to October 2025 and £11bn in the remaining five months.

The latter comprises budgeted deficits of £9bn and £11bn in November and December 2025, a forecast surplus of £23bn in January, and deficits of £1bn and £13bn in February and March 2026.

Borrowing and debt

Table 2 summarises how the government borrowed £95bn in the first seven months of the financial year to take public sector net debt to a provisional £2,905bn on 31 October 2025. This comprised £117bn in public sector net borrowing (PSNB) to fund the deficit, less a £22bn net inflow from working capital movements and government lending.

The table also illustrates how the debt to GDP ratio increased by 1.0 percentage points from 93.5% of GDP at the start of the financial year to 94.5% on 31 October 2025. Incremental borrowing of £95bn, equivalent to 3.2% of GDP, was partly offset by 2.2 percentage points from the ‘inflating away’ effect of inflation and economic growth on GDP, the denominator in the net debt to GDP ratio.

Table 2: Public sector net debt and net debt/GDP

7 months to Oct	2025/26 £bn	2024/25 £bn
PSNB	117	108
Other borrowing	(22)	10
Net change	95	98
Opening net debt	2,810	2,686
Closing net debt	2,905	2,784

*PSNB/GDP*	*4.0%*	*3.8%*
Other/GDP	(0.8%)	(0.4%)
Inflating away	(2.2%)	(3.1%)
*Net change*	*1.0%*	*0.3%*
Opening net debt/GDP	93.5%	94.4%
*Closing net debt/GDP*	94.5%	94.7%

Public sector net debt on 31 October 2025 of £2,905bn comprised gross debt of £3,352bn, less cash and other liquid financial assets of £447bn.

Public sector net financial liabilities were £2,583bn, which included public sector net debt plus other financial liabilities of £715bn, less illiquid financial assets of £1,037bn. Public sector negative net worth was £926bn, comprising net financial liabilities less non-financial assets of £1,657bn.

Revisions

Caution is needed with respect to the numbers published by the ONS, which are repeatedly revised as estimates are refined and gaps in the underlying data are filled. This includes local government, where the numbers are only updated in arrears and are based on budget or high-level estimates in the absence of monthly data collection.

This month was no different, with the ONS revising previously reported numbers for six months to September 2025 and for previous financial years. However, on this occasion, the changes made did not affect the aggregate totals when rounded to the nearest billion pounds.

Regular updates to economic statistics resulted in an upward revision to nominal GDP and a consequential 0.2 percentage point reduction in the ratio of public sector net debt to GDP from 95.3% to 95.1% as of 30 September 2025.

For further information, read the public sector finances release for October 2025.

This article was written by Martin Wheatcroft on behalf of ICAEW and was originally published by ICAEW.

ICAEW chart of the week: Controlling for debt

My chart for ICAEW this week shows how the high level of public debt is the main factor shaping next week’s Autumn Budget.

In the run up to next week’s Autumn Budget it has become clear that the Chancellor has very little room for manoeuvre.

In past fiscal events, a moderate downgrade in the economic and fiscal forecasts (see last week’s chart of the week) would typically be dealt with by allowing borrowing to rise, albeit in combination with a small cut in planned public spending (often to capital expenditure) and perhaps some minor tax rises.

This time is different. Borrowing – the normal safety valve for adverse forecast changes – is constrained by the existing high level of debt and by government’s existing plan to borrow substantial sums over the next five years, as illustrated by our chart of the week.

As my chart for ICAEW sets out, public sector net debt has risen over the past quarter of a century from £353bn on 31 March 2000 to £461bn in 2005, £1,028bn in 2010, £1,552bn in 2015, £1,816bn in 2020 and £2,810bn in 2025. It is forecast to rise further to £3,391bn on 31 March 2030.

Although the planned increase of £581bn over the coming five years is less than the £994bn increase over the previous five years, the latter included both the pandemic and an unexpected energy crisis.

The chart also shows how public sector net financial liabilities (PSNFL), the measure of debt that the Chancellor uses for her fiscal rules, increased from £300bn on 31 March 2000 to £2,439bn on 31 March 2025, with a planned rise of £480bn to £2,919bn due to take place on 31 March 2030.

The Chancellor’s debt fiscal rule is for the ratio of PSNFL to GDP starting to fall by 2029/30, or – in other words – for the rate at which debt is increasing to be slower than the rate of growth in the economy in four years’ time. The hope is that the borrowing the government is doing now to invest in infrastructure and economic development will speed up economic growth over that time, but unfortunately that is not yet showing up in the forecasts, which are going in the opposite direction.

With higher borrowing ruled out, the next option would be to look at spending. This also looks difficult as the Spending Review earlier this year locked in departmental budgets for the next few years (to 2028/29 for current spending and to 2029/30 for capital investment). Likewise, significant cuts in welfare spending also appear unlikely given the government’s failure to persuade its MPs to back a plan to cut back on disability and illness benefits and hints that the government wants to lift the two-child benefit cap. The Chancellor could potentially re-open the Spending Review, but that would risk spending going up not down given the continued pressures on health and the criminal justice systems, not to mention the international pressure from President Trump and others to accelerate increases in defence spending.

With other options such as raising the level of net inward migration also ruled out, that leaves taxation as the only real lever available to the Chancellor.

The flood of speculation ahead of next week’s Autumn Budget 2025 has ranged from manifesto-busting increases in one of the ‘big three’ taxes (income tax, VAT and national insurance) and fiscal drag (from the extension of freezes in tax allowances), to a long list of tax raising ideas to bring in just a little bit more money here and there that might together add up to a substantial amount.

At this point it seems that little can be ruled out.

This chart was originally published by ICAEW.

ICAEW chart of the week: A big Autumn Budget hole to fill?

My chart for ICAEW this week takes a look at the £40bn ‘hole’ in the public finances that the Chancellor may have to fill when she presents the Autumn Budget 2025 to Parliament on Wednesday 26 November.

There are two really big questions that most of us have for the Chancellor about the Autumn Budget 2025. Firstly, just how much money does she need to find? Secondly, where is she is going to find it?

My chart for ICAEW this week focuses on the first question – how much will the Chancellor need to find (in tax rises or spending cuts) to stick within her fiscal rules?

Speculation ranges from just under £20bn a year up to as much as £50bn depending on who you talk to, with the consensus being somewhere in the region of £30bn or £40bn.

The starting point for the chart is the official OBR projection that the Chancellor has already received. As we don’t have access to that, we have cribbed from the Institute for Fiscal Studies (IFS) Green Budget 2025 report, an independent ‘green paper’ pre-legislative report that provides an in-depth analysis of the economic and fiscal situation facing the UK that also takes a look at potential options available to the Chancellor.

Based on an updated economic forecast prepared by Barclays, the IFS think that the OBR’s March 2025 projected current budget surplus of £10bn in 2029/30 could be revised down to a projected current budget deficit of £12bn – a £22bn deterioration.

The numbers calculated by the IFS indicate £8bn lower tax receipts, £5bn higher debt interest, and £9bn higher current spending. The lower tax receipts and higher debt interest reflect a less favourable economic outlook than anticipated by the OBR back in March, while the latter consists of £1bn from the partial roll-back of cuts to the winter fuel allowance, £5bn from the failure to enact previously planned cuts to disability benefits, and £3bn from the effect of higher than previously forecast inflation on the uprating of the state pension and other welfare benefits.

If the OBR’s updated projections were to align with this scenario, then the Chancellor would need to find £22bn to get back to a projected current budget surplus of £10bn in 2029/30, assuming she decides again to give herself £10bn of headroom against her primary fiscal rule of a current budget balance.

We don’t know how these numbers compare with the numbers that the OBR are working on, but we do know that the OBR has been reviewing its assumptions for productivity growth, where it has proved consistently over-optimistic in previous forecasts. The IFS estimate that just a 0.1 percentage point downgrade in annual productivity growth would reduce the current budget balance by around £7bn in 2029/30, highlighting how sensitive the numbers are to relatively small changes. The IFS assume a downgrade of between 0.1 and 0.2 percentage points in their projection, although some rumours suggest the OBR has been considering a downgrade of as much as 0.3 percentage points.

The Chancellor has dropped a clear hint that she is going to abolish the two-child limit in the Autumn Budget as part of the government’s efforts to tackle child poverty, with the IFS and the Resolution Foundation both estimating that this could cost the exchequer between £3bn and £4bn a year by 2029/30. This would take the potential ‘hole’ up to £25bn.

For the purposes of the chart, I have also added in £5bn for further policy changes. Firstly, there is a good chance that the Chancellor will choose to make the existing 5p ‘temporary’ cut in fuel duties permanent at a cost of £2bn a year. This is currently scheduled to be reversed on 1 April 2026, alongside the expected end of the annual freeze in fuel duties – a measure that, if continued, could cost a further £3 billion a year by 2029/30.

The government is also under significant pressure – from President Trump and other NATO allies in particular – to accelerate increases in the defence budget to meet the new NATO target for spending on defence and security of 3.5% of GDP. Although the NATO target includes capital expenditure (which is not part of the current budget surplus or deficit), we have included a proxy amount of £3bn a year by 2029/30 for additional operating expenditure on defence.

This brings the potential funding requirement to roughly £30 billion, if the Chancellor aims to maintain £10bn of headroom against her fiscal rule of achieving a current budget balance in the fourth year of the forecast.

Unfortunately, as the government has discovered over the past year, such a small margin – less than 0.3% of GDP – is hugely problematic. Relatively small changes in the OBR’s assumptions or in actual economic performance can easily use up all the headroom, leading (as we have seen) to endless speculation about what the Chancellor is going to have to do to bring the public finances back under control.

The Chancellor is therefore expected to provide herself with a bigger cushion to reduce the risk of having to come back to raise taxes for a third time. The chart thinks she is likely to choose to double the level of headroom as a minimum – from £10bn to £20bn – with some economic commentators suggesting that an even larger cushion might be necessary.

The IFS point out in their report that extra headroom may be needed in any case because of the Chancellor’s second ‘debt’ fiscal rule, which is for public sector net financial liabilities to be falling as a share of GDP by the fourth year of the fiscal forecasts. Although she could cut the capital expenditure already budgeted for 2029/30 to remain within the fiscal rule, the Chancellor has said she wishes to avoid doing so.

Whatever happens, it looks like the Autumn Budget 2025 is going to be a pretty big deal.

This chart was originally published by ICAEW.

ICAEW chart of the week: US federal finances FY25

My chart for ICAEW this week looks at how the US federal government is funded and what it spends its money on.

The US federal government financial year ends in September each year and our chart this week takes a look at the provisional monthly receipts and payments statement for September 2025 (FY25).

According to preliminary numbers from the Bureau of the Fiscal Service, part of the US Department of the Treasury, the US federal government collected $5.2tn (17% of GDP or $1,275 per person per month) in taxes during the year ended 30 September 2025 and paid out $7.0tn (23% of GDP or £1,710 per person per month).

The shortfall of $1.8tn (6% of GDP or £435 per person per month) was funded by borrowing.

As our chart illustrates, the federal government’s tax receipts of $5.2tn comprised $1.7tn (6% of GDP or $425 per person per month) from social security contributions, $2.7tn (9% or $655) from income taxes, $0.5tn (1% or $110) from corporate taxes, and $0.3tn (1% or $85) from customs duties, excise taxes, and miscellaneous taxes.

Outlays comprised $1.6tn (5% of GDP or $385 per person per month) on social security programmes (principally pensions and unemployment insurance), $3.0tn (10% or $745) on health care programmes and subsidies (principally Medicare for retirees, Medicaid for children, the poor and those with disabilities, and Affordable Care Act subsidies for lower earners), $1.0tn (3% or $235) on net debt interest, $0.9tn (3% or $225) on US Department of Defense military expenditures, and $0.5tn (2% or $120) on the federal government excluding the military.

These numbers are (for the most part) cash receipts and payments. The US federal government’s accrual-based audited financial statements, prepared in accordance with standards issued by the US Governmental Accounting Standards Board, are normally published in the following February.

They may also seem quite low when compared with the UK’s public finances for example, but that is primarily because they exclude receipts and payments by the states, counties and city governments that provide most public services in the US in addition to their own welfare programmes.

Despite that, it may still be surprising to see how little the federal government costs once welfare programmes, debt interest and military programmes are excluded – just $0.5tn or $120 per person, less than 2% of GDP. This is the result of benefits of scale, a strong economy and the decentralised nature of government in the US.

Having said that, policymakers are concerned about rising debt interest and a widening deficit, which is expected to grow further in 2026 as the current administration’s tax cuts take effect and outweigh the planned spending reductions for FY26.

For more information about the US federal finances, visit FiscalData on the US Department of the Treasury website.

This chart was originally published by ICAEW.

Government deficit hits £100bn in the first half of the financial year

Revisions and corrections help reduce the budget overrun to £7bn for the six months to September 2025, but the outlook remains bleak.

The UK government deficit hit £100bn in the six months to September 2025, according to the latest Office for National Statistics’ (ONS) monthly public sector finances release for September 2025, published on 21 October 2025.

The report also revealed a provisional shortfall between receipts and public spending of £20bn last month. The deficit for the month was £1bn higher than the previous year, in line with the budget. The cumulative deficit was £12bn higher than the first half of 2024/25, and £7bn more than budgeted.

Month of September 2025

Provisional receipts and total public spending for September – £95bn and £115bn respectively – were each 8% more than the previous year.

Current spending included depreciation of £108bn, comparable to the £108bn monthly average in the first five months of the financial year. Net investment was £7bn, higher than the £4bn monthly average investment between April and August 2025.

Excluding net investment, the current budget deficit for the month was £13bn – £2bn more than in the same month last year, £1bn more than budgeted. This was offset by a £1bn underspend on net investment.

Six months to September 2025

The provisional deficit for the six months to September 2025 was £12bn (14%) more than in the same six months last year. This was £7bn higher than budget, which can be analysed as a £13bn budget overrun on the current budget deficit (current receipts less current spending), less a £6bn underspend on net investment.

Table 1 highlights the changes in year-to-date receipts, up 7% overall on last year’s equivalents. These increases were mostly driven by factors such as inflation and fiscal drag from frozen tax allowances. The 20% increase in national insurance revenues reflects the increase in employers’ national insurance.

The 9% increase in current spending over the year has been driven by public sector pay rises, higher supplier costs, and the uprating of welfare benefits.

Net investment of £28bn in the first six months of 2025/26 was £1bn, or 4% higher than the same period last year. Capital expenditure of £46bn was up by £2bn and capital transfers (capital grants, research and development funding, and student loan write-offs) of £18bn were up by £1bn, offset by depreciation of £36bn, up by £2bn.

Table 1 Summary receipts and spending

6 months to Sep	2025/26 £bn	2024/25 £bn	Change %
Income VAT	145	133	+9%
VAT	104	100	+4%
National insurance	98	82	+20%
Corporation tax	52	48	+8%
Other taxes	115	112	+3%
Other receipts	63	62	+2%
Current receipts	577	537	+7%

Public services	(363)	(334)	+9%
Welfare	(155)	(146	+6%
Subsidies	(18)	(17)	+6%
Debt interest	(77)	(67)	+15%
Depreciation	(36)	(34)	+6%
Current spending	(649)	(598)	+9%

Current deficit	(72)	(61)	+18%

Net investment	(28)	(27)	+4%

Deficit	(100)	(88)	+14%

Budget for the rest of the financial year

The deficit is budgeted to be £118bn for the full year ending 31 March 2026, comprising £93bn in the first half of the year to September 2025 and £25bn in the second half of the year.

Borrowing and debt

Table 2 summarises government borrowing in the first six months of the financial year, taking public sector net debt to a provisional £2,916bn on 30 September 2025. This comprised £100bn in public sector net borrowing (PSNB) to fund the deficit and a further £6bn to fund government lending and working capital requirements.

The table also illustrates how the debt-to-GDP ratio increased by 1.6 percentage points, from a revised 93.7% of GDP at the start of the financial year to 95.3% on 30 September 2025, with incremental borrowing of £106bn, equivalent to 3.5% of GDP. It was partly offset by 1.9 percentage points due to inflation and economic growth adding to GDP.

Table 2 Public sector net debt and net debt/GDP

6 months to Sep	2025/26 £bn	2024/25 £bn
PSNB	100	88
Other borrowing	6	(14)
Net change	106	74
Opening net debt	2,810	2,686
Closing net debt	2,916	2,760

PSNB/GDP	3.3%	3.1%
Other/GDP	0.2%	(0.5%)
Inflating away	(1.9%)	(2.7%)
Net change	1.6%	(0.1%)
Opening net debt/GDP	93.7%	94.4%
Closing net debt/GDP	95.3%	94.3%

Public sector net debt on 30 September 2025 of £2,916bn comprised gross debt of £3,368bn less cash and other liquid financial assets of £452bn.

Public sector net financial liabilities were £2,565bn, comprising the net debt plus other financial liabilities of £715bn, less illiquid financial assets of £1,066bn. Public sector negative net worth was £908bn – net financial liabilities of £2,565bn less non-financial assets of £1,657bn.

Revisions

Caution is needed with ONS figures, which are repeatedly revised as estimates are refined, and gaps in the underlying data are filled. This includes local government, where numbers are updated in arrears and are based on budget or high-level estimates in the absence of monthly data collection.

This month, the ONS revised down the previously reported deficit for the five months to August 2025 by £4bn, including a £2bn error correction for understated VAT receipts. The ONS also increased the reported deficit for the previous financial year (2024/25) by £4bn to £150bn to incorporate estimates of local government actual expenditure.

More significantly, the ONS revised its methodology for calculating economic activity, resulting in an increase in GDP of 1%. Doing so causes historical percentages for deficit and debt as a proportion of GDP to be revised downwards. This includes a 1.1 percentage reduction in public sector net debt/GDP at the start of the financial year on 1 April 2025, from the previously reported 94.8% to the 93.7% shown in Table 2.

Martin Wheatcroft, external advisor on public finances to ICAEW, said that public finances were broadly as expected, with the £20bn deficit for the month in line with budget.

“Borrowing to fund the deficit was a fraction under £100bn in the six months to September, the second-highest half-year deficit on record after the pandemic year. This was despite a narrowing of the year-to-date budget overrun to £7bn, as a consequence of error corrections and other revisions to previous months. In addition, statistical revisions to the size of the economy resulted in around a percentage point fall in the ratio of public sector net debt to GDP.”

Tepid economic growth and high debt interest costs will continue to weigh on prospects for the rest of the financial year, he added. “The revisions do very little to alter the bleak outlook for the public finances that is driving the need for a significant fiscal correction in the Autumn Budget 2025.”

This article was written by Martin Wheatcroft for ICAEW and was originally published by ICAEW.

ICAEW chart of the week: Tax burden rising

My chart for ICAEW this week shows how tax receipts as a proportion of national income have risen significantly since the turn of the century, begging the question as to whether taxes are too high or the UK economy is too small?

ICAEW chart of the week: Table burden rising.

A line chart with a solid purple line for tax receipts/GDP (three-year moving average) and a dotted teal line for total receipts/GDP (three-year moving average).

Tax receipts/GDP (solid purple line) zigs and zags between 32% in 1999/00 to 32% in 2004/05 to 33% in 2009/10 to 33% in 2014/15 to 33% in 2019/20 to 35% in 2024/25 to 38% in 2029/30.

Total receipts/GDP (dashed teal line) broadly tracks the purple from 35% in 1999/00 to 42% in 2029/30.

17 Oct 2025. Chart by Martin Wheatcroft FCA.
Source: OBR, 'Public finances databank: Sep 2025'.

My chart of the week for ICAEW illustrates how tax receipts as a percentage of GDP averaged 32% over the three years to 1999/00, 32% to 2004/05, 33% to 2009/10, 33% to 2014/15, 33% to 2019/20, 35% to 2024/25 and are projected to hit 38% over the three years to 2029/30, based on data from the Office for Budget Responsibilities’ public finances databank for September 2025.

The chart also shows how total receipts including non-tax income averaged 35% in the three years to 1999/00 and a projected 42% to 2029/30.

The one caveat to these percentages is that they do not reflect recent revisions by the Office for National Statistics that increase GDP by the order of 1% across multiple years, which will cause the reported percentages to be a little smaller when they are recalculated by the OBR for the Autumn Budget 2025.

Either way, a projected rise of approaching 20% in the proportion of the economy taken in taxes since the end of last century is pretty significant, even if the projected tax burden will be lower than those of many countries in Europe.

The chart doesn’t show public spending as a proportion of national income. This averaged 35% of GDP over the three years to 1999/00 and 45% of GDP over the three years to 2024/25, with more people growing older driving up the cost of pensions, health and social care significantly and a much higher bill for debt interest being two of the main factors driving up costs.

Public spending as a share of national income is projected to fall slightly to an average of 44% over the three years to 2029/30 as the government tries to reduce the shortfall between total receipts and spending (aka the deficit) through a combination of higher taxes (as announced in the Autumn Budget 2024) and some constraint in public spending over the next five years.

Unfortunately, a lack of fiscal headroom, a disappointing economic outlook, and cost pressures are now expected to lead the Chancellor to increase taxes even further in the Autumn Budget 2025. This suggests that taxes may be too low, at least if the government is to deliver the level of public services and welfare provision it is committed to.

If taxes are not too high, then the problem must be that the economy is too small. This is evidenced by low productivity growth since the financial crisis and successive economic shocks that have together resulted in a UK economy that has not grown at anywhere near the speed it might have.

If tax cuts are unlikely, at least in the medium-term, the principal route to reduce the tax burden must be to drive up economic growth, as called for in ICAEW’s business growth campaign. This calls for the government to focus on business growth by addressing the many factors that make it too uncertain, too difficult and too expensive to do business in the UK.

This chart was originally published by ICAEW.