2 Autumn Budget | 28 October 2026 Introduction ‘Breathing space’, ‘small wins’, ‘steady as she goes’. The language accompanying this year’s Budget is distinctly different from last year’s. After two Budgets which raised over £67 billion in taxes, a new chancellor and prime minister were always unlikely to aim for a big revenue-raising hat trick for their first fiscal event. They were helped by the fact that those earlier Budgets had left over £23 billion of fiscal ‘headroom’. Unfortunately, that comforting figure was calculated by the Office for Budget Responsibility (OBR) at the start of March 2026, just as the Iran war was beginning. Over 34 weeks later, President Donald Trump’s “short excursion” has changed the economic backdrop of the OBR’s latest calculations. In early March, the expectations were that 2026 would see a fall in inflation and further cuts in interest rates. Those views were echoed by the OBR in its March 2026 Economic and Fiscal Outlook, albeit with a prescient introductory comment that “Conflict in the Middle East … could have very significant impacts on the global and UK economies”. At the end of October the OBR is now expecting a quarterly peak in the CPI of 3.75% in early 2027 and inflation averaging 3.4% next year rather than March’s projection of 2.0%. The OBR reckons that combination has increased borrowing by an average of £11 billion a year. Those calculations constrained Chancellor John Healey’s room for manoeuvre. To give himself enough cash for “breathing space” measures, Healey announced the 2029/30 headroom would fall to £15 billion, while (unspoken) he raised the overall tax take by nearly £7 billion a year by 2031/32. The two largest sources of extra Treasury income were set to be the HMRC perennial of ‘closing the tax gap’ and, perhaps surprisingly, the reduction in the writing down allowance. Official portrait of John Healey MP, by Richard Townshend, licensed under Creative Commons Attribution 3.0 Unported license
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