Welcome to the Post-Fiscal Britain
More Debt. Less Growth. No Excuses Left.
All figures cited here come from the UK Office for Budget Responsibility’s Fiscal Risks and Sustainability Report – July 2025 (CP 1343).
The UK's Office for Budget Responsibility has just issued a fiscal warning so severe it makes reading a mortgage statement after a rate hike feel almost comforting. Britain now ranks sixth-highest in debt, fifth in deficit, and third in borrowing costs among 36 advanced economies. A triple threat few would envy.
The July 2025 report reads like something between a technical manual and a slow-burning economic thriller. After a cascade of global shocks (COVID-19, the energy crunch from Russia's invasion of Ukraine, and a revolving door of domestic policy U-turns) the UK now finds itself in what the OBR diplomatically calls a "relatively vulnerable position."
In other words, the country's public finances are stretched thin. And the thread holding them together is fraying.
None of this should be surprising. For years, UK fiscal policy has operated with a kind of short-term muscle memory: every time political pressure rises, tax increases are shelved, and spending cuts are quietly reversed. Eventually, the arithmetic catches up.
According to the OBR's baseline scenario, that reckoning is well underway. Public debt is expected to rise from 96.5 percent of GDP today to more than 270 percent by the early 2070s. That's not just drift. It's trajectory.
Take the pension triple lock. Introduced with the best of intentions, it now guarantees state pensions rise by whichever is higher: inflation, wage growth, or 2.5 percent. But in practice, this "floor" on generosity has become one of the biggest long-term spending accelerators in the budget. The report estimates the policy will cost £15.5 billion more annually by 2029–30, nearly triple the original forecast.
This makes sense when you consider that inflation exceeded 2.5 percent in eight of the past thirteen years. The result? A compounding mechanism that locks in higher spending each time inflation spikes.
Currently, the state pension consumes around 5 percent of GDP (£138 billion). By the early 2070s, it's projected to rise to 7.7 percent. As the report notes, only part of that is due to demographics. The rest comes from the structural ratchet effect: a policy that raises the floor with no ceiling in sight.
Meanwhile, the private pension landscape offers little relief. Around 40 percent of working-age adults aren't saving enough for a secure retirement. That creates a future burden the state will have to absorb, especially for renters, the self-employed, and low-income earners.
Adding to this is the quiet shift from defined benefit (DB) to defined contribution (DC) schemes. The OBR explains how DB schemes, once heavy purchasers of government bonds, are winding down. DC schemes prefer more diversified assets, and their gilt exposure is significantly lower. This shift is reducing structural demand for government debt just as the UK plans to issue more of it.
That's a textbook supply-demand problem. The result, as the report warns, is likely higher borrowing costs. That, in turn, means more interest payments and fewer resources for everything else.
Climate change introduces another long-term liability that rarely gets factored into day-to-day fiscal debate. The OBR projects UK GDP could shrink by 3.3 to 7.8 percent by 2060, depending on global temperature pathways. Achieving net zero by 2050 will cost an estimated £803 billion, around 21 percent of current GDP.
These are not abstract figures. They are future obligations, already on the books whether we admit it or not.
In the central scenario, climate-related costs (both from mitigation and damage) could push debt up by an additional 74 percent of GDP by the early 2070s. And, as the OBR makes clear, these aren't one-off events. They represent permanent shifts in how the state must allocate resources.
Delaying serious climate action only makes the fiscal costs steeper. And yet, as with pensions, the political system continues to operate as if these choices can be deferred indefinitely.
Which brings us to the larger pattern. The OBR's report doesn't just tally up spending lines and liabilities. It paints a portrait of a political culture that's been whittling away at its own fiscal resilience for over a decade.
The government acknowledges the risks but often counters them with cosmetic responses. Pledging to avoid new borrowing sounds prudent, but as the report points out, existing policies are already steering the ship into unsustainable waters.
A wealth tax is floated as a possible solution. But with the top 1% already contributing nearly a third of income tax revenue, the room for further extraction is limited. It's not that such proposals are wrong. They're just nowhere near sufficient.
The opposition, for its part, focuses on immediate impacts: jobs, pensions, savings, and household security. All valid concerns. But they largely sidestep the deeper structural question: can the UK political system take on a generational fiscal rebalancing, or is it stuck managing decline?
The OBR's international benchmarking is stark. Sixth in debt. Fifth in deficit. Third in borrowing costs. These aren't cyclical aberrations. They're the product of a decade-plus of unresolved trade-offs.
And there are consequences. Higher debt and rising interest rates crowd out investment and reduce the government's ability to act during future downturns. The political bandwidth needed to address long-term challenges gets consumed by short-term fire-fighting.
To restore debt to pre-pandemic levels, the OBR estimates the UK would need to tighten policy by 1.5 percent of GDP every decade for the next 50 years. That's the kind of sustained discipline not seen since the post-war consensus.
Whether that's politically possible in a democracy raised on "no pain" promises remains an open question.
For years, the UK sold its citizens a dream: European-style public services at American-style tax rates, paid for by borrowing that never came due. That illusion has run its course.
The real tragedy is that this wasn't inevitable. Other countries with similar demographics, similar shocks, and similar choices managed better outcomes. What they had (and what the UK has lacked) is long-term thinking, policy consistency, and the political courage to level with voters.
The OBR's report is more than a fiscal document. It's a judgment. The data is there. The trendlines are unmistakable. And unless something changes soon, the only question left will be whether the reckoning arrives by choice or by market force.