Chancellor holds the line in first ever ‘non-fiscal’ fiscal event

The Chancellor provided an economic and fiscal update to Parliament on Tuesday 3 March 2026 in which she reported on the latest Office for Budget Responsibility (OBR) five-year forecasts and the progress made since the government came into office.

Henning Diederichs, ICAEW Public Sector Senior Technical Manager, said:

“After a failed attempt last year, the Chancellor was able to deliver an economic and fiscal statement to Parliament without any tax and spend announcements – in line with her objective of only delivering one fiscal event a year, a Budget each autumn.

“The good news is that the big tax rises announced in November 2025 were big enough to provide her with the fiscal headroom she needed to avoid any need for a fiscal response. Even better, falling inflation, lower interest rates and higher equity prices were able to offset the effects of lower growth in 2026 and lower inward migration and higher unemployment over the next five years.

“The bad news is that the Spring Forecast wasn’t entirely policy free, with the OBR having to incorporate additional spending on special educational needs provision into the forecasts in addition to several U-turns and course changes made by the government since November. This is becoming a hallmark of this government, meaning the public finances are not quite as stable as the Chancellor says she wants to see even before taking account of a rapidly changing global environment.”

Spring Forecast 2026

While the Chancellor’s speech focused mostly on the government’s record, the OBR’s latest projections for the economy and the public finances were only a little different from their previous iteration from last November, as illustrated by Table 1.

Table 1 – Forecast changes since the Autumn Budget 2025

2025/26

The £5bn reduction in the estimated fiscal deficit for the current financial year from £138bn to £133bn can be split between a net £1bn deterioration in the forecast for current receipts and spending offset by a £4bn cut in planned departmental spending and a £2bn cut in investment spending of £2bn.

The £1bn deterioration in the current budget balance forecast comprises a £2bn improvement in capital tax receipts (driven by higher equity prices) and a £4bn saving on debt interest offset by £2bn in lower other taxes from weaker growth and £3bn and £2bn of overspends in central and local government respectively.

The revised estimate for the deficit of £133bn is £15bn more than the 2025/26 budget of £118bn despite the most recent numbers for the 10 months to January being just £8bn over budget.

2026/27

The budgeted deficit for 2026/27 was revised up by £4bn to £116bn, comprising a £1bn deterioration in the current forecast and £4bn from policy decisions partially offset by £1bn in lower forecast investment spending.

The £1bn forecast deterioration comprises similar improvements in capital tax receipts and debt interest as in 2025/26 (£2bn and £4bn respectively) offset by a £3bn reduction in other taxes from weaker growth in 2025 and 2026, £1bn in higher welfare costs, and £3bn in increases in other projected costs.

The policy decisions announced since the Autumn Budget of £4bn in 2026/27 comprise £1.1bn in exceptional financial support for local authorities, a £1.1bn one-off contribution towards clearing local authority accumulated special educational needs (SEND) deficits, a £0.6bn tax cut for US-parented groups, £0.1bn less inheritance tax from increasing the threshold for agricultural and business reliefs from £1m to £2.5m, and £0.1bn business rates relief for pubs and live music venues plus £0.4bn in other measures and £0.4bn in indirect effects.

2029/30

The projected deficit for 2029/30 – the fiscal rule test year – was revised down by £5bn from £68bn to £63bn. This comprised an £8bn forecast improvement in the current budget surplus offset by £6bn from policy decisions – a £2bn improvement to the current budget balance that increases fiscal headroom to £24bn – plus a £3bn change in the forecast for capital investment.

The improvement in the current forecast of £8bn reflects £9bn in higher projected tax receipts, of which £6bn is because of higher equity prices and £3bn because of stronger economic growth between 2027 and 2030, plus £2bn in lower projected debt interest less £3bn in other spending projections.

The £6bn net cost of policy decisions comprised £4.4bn in extra SEND funding as announced by the government on 23 February 2026 and £0.5bn in other spending increases, £0.7bn in less tax from US-parented groups, £0.1bn from lower inheritance tax on farmers and £0.2bn in other tax reductions, plus £0.3bn in indirect effects less £0.5bn in additional council tax increases.

Fiscal balances

Table 2 summarises the Spring Forecast after the effect of policy decisions and forecast revisions made by the OBR.

Table 2 – Spring Forecast 2026 summary

Although not formally assessed by the OBR at this ‘non-fiscal’ fiscal event, the numbers indicate that the Chancellor complies with her primary fiscal rule for a projected current budget surplus in the fourth year of the forecast period (in this case 2029/30) by a margin of £24bn. She also meets her secondary fiscal rule (for public sector net financial liabilities to be falling in the fourth year of the forecast period), by a margin of £27bn, an improvement of £3bn since the Autumn Budget.

Headline public sector net debt is now expected to increase from an anticipated £2,922bn on 31 March 2026 (£18bn less than the autumn forecast) to £3,427bn on 31 March 2030 (£25bn less).

Martin Wheatcroft, external advisor on public finances to ICAEW, commented:

“The OBR revised the UK’s official fiscal forecast by a relatively small amount overall, with £18bn of the cumulative £25bn reduction in projected public sector net debt on 31 March 2030 coming from revisions to estimates for the current and previous financial years and only £7bn from changes to the projections from 1 April 2026 onwards.

“The conflict with Iran will be an immediate concern for the Chancellor, particularly the implications for energy prices. But what it does mean is that the government will no longer be able to avoid (as its predecessors did) committing to a very substantial increase in defence spending at the Autumn Budget, if not much sooner.

 “This is in addition to the many other spending pressures the government is under, ranging from potential changes to the terms of student loans to the ability of the government to deliver a significant amount of efficiency savings over the course of the three-year spending review period starting on 1 April.

“The Chancellor should be able to ‘pay’ for at least some of the increase in defence spending through a scheduled change in the fiscal rules in the upcoming Autumn Budget. This will see an additional buffer of 0.5% of GDP or £18bn added to headroom on her primary fiscal rule as a quid pro quo for bringing forward the fiscal rule test year to the third year of the forecast. The problem is that this relies on the existing headroom surviving the next seven months of economic developments.”

• See our chart of the week on the Spring Forecast 2026