The Office for Budget Responsibility (OBR) has published its assessment of the UK's public finances on 7 July 2026, and it doesn’t paint a pretty picture.
It highlights growing long-term pressures from an ageing population, rising healthcare and pension costs, and increasing debt interest. The report suggests that future governments may need to raise additional revenue, reduce spending growth, or both, to place the public finances on a more sustainable footing. It also suggests that taking action sooner rather than later will be more cost effective.
The report assumes that current policies remain unchanged into the future and works through the consequences of those choices.
Amongst the many eye-catching conclusions one that especially stands out is that if personal tax thresholds remain unchanged, people on national living wage will be higher rate taxpayers by the 2060’s. That suggests basic rate tax effectively becomes 40%.
While the report does not attempt to set tax policy, it reinforces the likelihood of government doing some of the following:
- continued use of fiscal drag through frozen thresholds and other failures to take inflation into account
- further scrutiny of tax reliefs and allowances, deciding whether they offer value for the revenue foregone
- ongoing focused HMRC compliance activity, most likely using AI to target those companies or individuals that appear to be ‘outside the norm’
- a tax environment that is unlikely to become significantly more friendly in the near future. The use of revenue raising ‘shadow taxes’ such as levies on targeted parts of the economy will become even more attractive.
What does it mean for me and my business?
For individuals
Don’t assume that the tax system of today will remain unchanged. Make the most of what you can, while you can.
- Are you making full use of available pension and ISA allowances?
- Is your estate and succession planning up to date?
- Could future changes to tax reliefs affect my long-term plans? Do I have a plan B?
- Should I accelerate or defer any significant financial decisions?
If you own a business
- Is your current business structure still appropriate for your objectives? Should I make sure I have the maximum flexibility to respond to future changes?
- Does the structure allow me to extract profits in the most effective way both now and in the future?
- Does the business have a clear succession or exit plan? Is it robust in the event of changes to the tax regimes?
- Are surplus cash reserves being managed effectively? Are they best in the business or would it be better if they were elsewhere?
- How exposed is the business to increased HMRC scrutiny or compliance requirements? We can expect HMRC to look hard at the ‘tax gap’ those businesses with good clear records and clean tax positions will attract less attention.
In summary
The OBR's report is not a signal to make immediate changes, but it gives a pretty good signal as to the direction of travel. It is a reminder that nothing stays the same forever and taxpayers and businesses should regularly review their affairs. This will ensure they remain well positioned to adapt to future fiscal and tax policy developments.
For further information, please get in touch with your usual Crowe contact.
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