The Office for Budget Responsibility’s (OBR) Fiscal Risks and Sustainability Report (July 2025) presents a stark assessment of the UK’s long-term fiscal outlook.
Before we summarise the key points, we should bring in a few notes of caution that should temper the negativity that these reports bring.
Firstly, this is a report highlighting risks. These reports are invariably pessimistic and focus on downsides, not upsides. It’s never going to be an easy read.
Secondly, the OBR is often wrong, and you could be forgiven for thinking they change their mind on a regular basis. This is a little unfair, but as with economists, they don’t have a crystal ball, and their ability to see the future should be regarded with some scepticism.
What the report does do is underscore the significant structural challenges that this, and indeed any, government faces. The underlying problems span decades, and cut across multiple governments: Conservative, Labour and coalition-led.
There is a good case for the argument that it is impossible to address these fundamental economic issues and win an election. They are extremely emotional topics. The OBR report shows that the triple lock is unsustainable. Yet removing it is viewed as political suicide. Healthcare needs reform, but NHS funding is hugely important to the electorate. The Government’s defeat on welfare reform by its own MPs, which has compounded its economic problems, shows what an incredibly difficult task they face.
Key Findings
1. Public Debt Trajectory
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The UK’s public debt is projected to escalate from approximately 94% of GDP to over 270% by the early 2070s, assuming current policies persist.
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This surge is attributed to factors such as an ageing population, escalating healthcare and pension costs, and the financial demands of climate change mitigation.
2. Fiscal Vulnerabilities
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The UK ranks among advanced economies with the highest debt and borrowing costs, with a deficit of 5.7% of GDP—significantly above the average.
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The government’s capacity to respond to future economic shocks is constrained due to diminished fiscal headroom.
3. Climate Change Implications
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A global temperature rise of nearly 3°C could contract UK GDP by 8% by the early 2070s.
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The fiscal impact of both climate damage and mitigation efforts could increase government debt by 74% of GDP within the same timeframe.
4. Pension and Gilt Market Pressures
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State pension expenditures are projected to rise to 7% of GDP by 2070, driven by demographic shifts and the “triple lock” policy.
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The move from defined benefit to defined contribution pension schemes is reducing domestic demand for government bonds, potentially increasing reliance on foreign investors and elevating borrowing costs.
5. Cybersecurity Risks
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The OBR highlights the economic risks posed by cyberattacks, citing recent attacks on HMRC and M&S, noting that a significant attack could add 1.1% of GDP to borrowing.
Long-Term Implications for UK Investors
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Interest Rates and Inflation: Elevated public debt levels may exert upward pressure on interest rates, affecting bond yields and borrowing costs.
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Taxation: To address fiscal imbalances, the government may need to consider tax reforms.
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Investment Strategies: Diversification is even more important to avoid excessive exposure to more vulnerable asset classes.
As you would expect, these considerations are already factored into our financial planning process.
For a comprehensive understanding, the full report is available on the OBR website.
