European Daily: UK—Scenarios for Spending, Tax, and Borrowing

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European Daily: UK—Scenarios for Spending, Tax, and Borrowing

Economics Research

17 July 2026 | 5:55PM BST

n We assess the potential fiscal pressures facing the government. While James Moberly

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uncertainty remains high, we set out stylised scenarios for how the Burnham james.r.moberly@gs.com

Goldman Sachs International

administration could respond.

n We expect the OBR to modestly raise its deficit forecast before new policies –

perhaps by around £5bn (0.15% of GDP) by the end of the Parliament – as higher

rates and weaker growth slightly outweigh a stronger wage forecast.

n The government faces significant spending pressures. Day-to-day departmental

expenditure plans look tight and we expect an upgrade worth £5-20bn a year by

2029/30, though the timing of this change is unclear. Cost-of-living measures

and increases in capital budgets also look likely, with a potential range of

£5-20bn additional spending in these areas. Taken together, our scenarios for

incremental spending range from £10bn to £40bn.

n A material increase in revenues remains difficult given Labour’s manifesto tax

pledges. Capital gains tax reforms, property tax increases, a broadening of the

National Insurance tax base, and anti-avoidance measures could raise £10-20bn

a year. But reaching the upper end of this range introduces more tradeoffs,

including with the cost of living.

n Overall, our analysis indicates risks are skewed towards higher deficits than

currently planned. Burnham has said he will stick to the fiscal rules, but more

borrowing could be accommodated through lowering headroom, increasing

financial investments, or tweaking the debt target. That said, risks of market or

monetary policy responses will still constrain the magnitude of any fiscal

expansion.