"uk Budget Preview 3: Eyeing Up A Smorgasbord" From The Fraser Of Allander Institute

20th November 2025

The upcoming UK Budget is generating heavy speculation, with many briefings and policy rumours already circulating.

The fiscal position facing the current Chancellor Rachel Reeves is difficult: her predecessor Jeremy Hunt had left only a small "fiscal head-room" of about £9 billion (~0.25% of GDP) before the forecast errors of the independent budget office take effect.

Reeves' October 2024 Budget loosened spending significantly compared with Hunt's more consolidation-oriented plans, raising net borrowing in every year compared to the prior plan.

Meanwhile, the fiscal rules themselves were relaxed, reducing the margin for error further.

Key risk factors

A major one is the revision of productivity assumptions from the Office for Budget Responsibility (OBR). Productivity growth has been far below historical averages (around 0.5% per annum) and so future tax-receipts and growth may well be weaker than previously assumed.

Slower growth means lower tax revenues and larger structural deficits, leaving borrowing (already high) or spending cuts (politically hard) as the only options.

The government's buffer ("head-room") against adverse shocks is very small: about £9.9 billion (~0.3% of GDP). Given the OBR's typical forecast error is larger, this puts the Chancellor in a precarious position.

What might be on the menu — the "smorgasbord" option

One clean solution would be a broad-based tax increase (for example raising the basic rate of income tax) which would reliably raise revenue and avoid many distortions.

But politically the Chancellor appears to be steering away from such a big-bang option, instead opting for a "smorgasbord" of smaller, targeted tax rises or freezes—e.g., freezing tax thresholds (so more people pay higher rates), taxing electric vehicles, limiting salary-sacrifice pension schemes, increasing gambling levies.

While these smaller measures may add up, they carry risks: uncertain revenue yields, potential behavioural responses / avoidance, and strong push-back from targeted groups. The report warns that the “cold buffet might look tempting, but a main course would definitely fill the appetite”.

Hidden accounting and budget “tricks”

The report warns of “smoke and mirrors” — the Chancellor might count on future capital spending cuts or shift spending into later years beyond the current spending review to make the numbers look better without delivering real change.

It points out past predecessors who pencilled in undeliverable savings to meet fiscal rules, and suspects that something similar might happen again.

Bottom line

The Chancellor is facing little margin for error, weak growth prospects, and the need to deliver either tax rises or spending cuts (or both) to restore a credible buffer.

The chosen approach—many smaller measures rather than one broad increase—is politically safer but carries risks of under-delivery and insufficient revenue.

The report suggests that the Government should aim for a substantially larger buffer than the historically low level (£9-10 billion) it currently has, because the forecast error alone is larger than that.

Note
This is summary of the Fraser of Allender report. To read it in full go HERE