United Kingdom: Backloaded consolidation risks – Deutsche Bank

Deutsche Bank’s UK Chart Of The Week, authored by Sanjay Raja, Shreyas Gopal and Maui Brennan, argues that UK fiscal consolidation since the 2024 election is primarily tax-driven and heavily backloaded. The authors highlight rising spending, concentrated tax measures and reliance on behavioural savings, warning that limited fiscal headroom will constrain the upcoming Budget under Chancellor Healey.

Backloaded tax-heavy UK consolidation

"It’s that time of year again with Budget season now fully upon us. Markets will be bracing for a new government, a new vision and a new economic strategy, but the same public finances. Chancellor Healey struck a more optimistic tone in his first set-speech on 7 September."

"But the headwinds to the public finances are real, with fiscal headroom likely to be nearly halved."

"First, fiscal consolidation is a tax story. Spending decisions across the last four fiscal events have added on average around GBP 82bn per annum on a net basis. Tax rises account for an average of GBP 52bn."

"Second, there is a lot of backloading in the fiscal plans. Gross tax consolidation is 2.3x larger in 2029/30 than in 2025/26."

"Big picture, with the Chancellor sticking to the fiscal rules and manifesto pledges, there’s very little room to manoeuvre in the coming Budget. It’s likely that the past strategy of delaying consolidation, pushing efficiency savings, and relying on a handful of peripheral tax measures will feature again on the 28th of October."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)