The OBR Has Run the Numbers on Britain’s Borrowing. It Is Terrifying.

1A report that deserves to be read

The Office for Budget Responsibility (OBR) has released its Fiscal Risks and Sustainability report for 2026. Reading it is not for the faint of heart.

Before we discuss its contents and what it can teach us, it is worth pointing out that it is an excellent piece of analytical work. The OBR is often maligned by those on the right and the left but it does a very good job under often trying circumstances.

This latest report should be a wake-up call for us all and for Team Burnham in particular. The report is called ‘Fiscal Risks and Sustainability’ but there are sadly only risks and no sustainability. This is driven in large part by an ageing population, compounded by wider health-cost pressures and existing policy commitments.

2The numbers

The OBR projects that health spending (already roughly the same size as the entire GDP of Portugal) will increase from 8 per cent of GDP in 2030-31 to 13 per cent of GDP by 2075-76. Spending on the State Pension is forecast to increase from 5 per cent of GDP to 9 per cent of GDP by 2075-76. At the same time, spending on education looks set to decline. During this period, the National Debt is set to balloon.

This is alarming enough by itself, but things are even worse than that. The baseline assumes productivity growth gradually recovers from around 1 per cent today to a long-run average of 1.4 per cent — far above the UK’s post-financial-crisis performance. It assumes no major shocks such as another financial crisis, pandemic, or war. It also assumes no increase to the interest rate payable on the National Debt. Under the OBR’s adverse scenarios, debt rises above 600 per cent of GDP and, in the most extreme case combining weaker fiscal performance, repeated shocks and higher interest rates, approaches 1,000 per cent by 2075-76.

3What failure looks like

This is not sustainable. Debt interest cost £110bn in 2025-26 and is now the third-largest area of public spending, behind only health and welfare. If another major crisis hits, Britain will have far less fiscal room to respond. The danger is not an uncovered gilt auction tomorrow, but a steady erosion of market confidence. In a global shock, with governments competing for capital, investors will demand a higher risk premium from countries with weak fiscal positions. Push that far enough and the risk of a failed or poorly covered gilt auction becomes real, with all the financial panic that would follow.

It’s unlikely that this will get that far. If things continue on their current trajectory, however, a future government could find itself facing the sort of fiscal crisis that ends with recourse to the IMF. This would be incredibly painful, humiliating, and take the country decades to recover from.

The report is called ‘Fiscal Risks and Sustainability’ but there are sadly only risks and no sustainability.

4Grasping the nettle

Rather than kicking the can down the road for future generations to deal with and imperilling our national security, the Burnham government needs to take bold action now. The first step will be to tackle the burgeoning welfare bill. It’s right that those who can’t work for whatever reason get the help they need, but that those who can are moved out of a life of dependency. It’s not just out-of-work welfare which the government will need to tackle. Burnham will have to grasp the nettle and look at the growing old-age welfare bill. This will involve means-testing the State Pension as well as the many other benefits which the elderly receive such as free eye tests and bus travel. It will mean raising the State Pension Age. Crucially, it will involve abolishing the Triple Lock and replacing it with a single lock indexed to average wage growth.

It will also mean shrinking the size of the Civil Service and reforming the very generous public sector pension system. It will also mean abolishing the majority of the subsidies associated with Net Zero.

5Productivity is the way out

However, simply slashing public spending will not be enough. The most important thing is to increase productivity as that is the key driver of economic growth. This will mean reforming and cutting taxes once spending has been reduced so that households and firms are incentivised to work hard and invest.

It will also involve reforming the labour market. We should want a country where it is easy for a person to move into a new job straight away. Unfortunately, under our current system, it is becoming increasingly expensive and risky for firms to hire new people — especially the young. As such, the recent increase to Employers’ National Insurance should be reversed, the Employment Rights Act 2025 should be abolished, and the minimum wage should be scrapped for those under 25.

It will involve further opening up our markets to trade and investment. This would mean working to strike more trade deals with other countries. It should also mean unilaterally scrapping all agricultural tariffs, quotas, and subsidies and pursuing free trade in food with the entire world.

The planning system needs to be reformed so that it is far easier to build homes in and around our major towns and cities so that businesses can have access to the workers they need and employees face shorter commutes and are not deterred from taking a job which would be a good fit. We should also be building data centres, offices, labs, and nuclear power plants and ban the use of judicial review which can delay or prevent them from being built.

6The squandered advantage

Finally, we need to look at the major downturn in productivity after the Global Financial Crisis (GFC). The post-GFC productivity slowdown was broad, but manufacturing and financial services — previously major contributors to UK productivity growth — account for a disproportionate share of the deterioration. The UK has a real comparative advantage in these sectors but we have squandered it.

For manufacturing, this will involve abandoning the frantic rush towards Net Zero which has increased energy prices and made lots of manufacturing simply unviable. For financial services, that will involve scrapping the plethora of taxes and regulations which were spitefully introduced to specifically target banks after the GFC.

Most of this will be unpopular with the British public. All of it will be deeply unpopular with Burnham’s backbenchers. However, the future of Britain is at stake and if the government doesn’t take bold action now it will be our children and grandchildren who pay the price.