A country cannot tax its way to success.
An unsettling look at the economic settlement that Britain now seems willing to accept can be found in this week’s latest fiscal forecast. By the end of the forecast period, borrowing will have decreased from 5.2% of GDP in 2024–2025 to about 1.6%. Public debt stabilises at roughly 95% of national income. At those levels, even small shifts in interest rates matter: the Office for Budget Responsibility estimates that a sustained one-percentage-point move in Bank Rate changes government borrowing costs by around £15 billion.
In the later years of the forecast, economic growth limps along at about 1.5%, while unemployment is expected to peak at 5 1/3%. Meanwhile, the tax burden approaches an unprecedented 38% of GDP, the highest sustained level in the post-war era, as public spending remains significantly higher than its pre-pandemic share of the economy.
Taken together, these forecasts describe an economy settling into a comfortable equilibrium of high taxation, high debt and chronically modest growth. Expectations are quietly lowered, and economic underperformance is being normalised.
There is no ambition here. Nothing is reset. Nothing is reimagined. Nothing really changes.
There is something unmistakably Starmerite about the entire outlook. The Prime Minister’s political persona is built on reassurance and managerial competence. The chaos will stop. The adults are back. Nothing dramatic will happen on his watch. Rachel Reeves is no different.
But countries do not restore economic dynamism through managerial composure alone.
Britain was once the workshop of the world. Later it became one of the most open and dynamic economies in Europe. When the post-war economic model began to falter in the 1970s the country eventually recognised that incremental tweaks would not suffice. Structural reform became unavoidable.
What followed was neither cautious nor gradual. The reforms of the 1980s dismantled large parts of the existing economic model and replaced them with something far more competitive. Nowhere was that clearer than in the financial sector. The Big Bang of 1986 swept away restrictive practices, opened London’s markets and helped turn the City into one of the world’s dominant financial centres.
Whether one applauds or criticises those reforms, their ambition is undeniable. That sense of ambition is strikingly absent from Britain’s economic debate today.
Instead, the state is not being structurally rethought. It is simply being financed more heavily. The clearest example is the continued freeze in income tax thresholds. Earlier OBR analysis says this policy alone will be raising roughly £67 billion a year by the end of the decade.
By 2030–31 around one million more people will be brought into paying income tax, and roughly 1.6 million people will pay the 45% rate, a level originally introduced to target the “super-rich.” At the same time, another one million pensioners will be drawn into paying income tax. This is both unsustainable and politically corrosive.
As Margaret Thatcher reminded us, “You cannot tax a country into prosperity.”
The broader economic outlook is equally modest. Productivity growth is expected to recover only slowly, reaching roughly 1% annually in the medium term. That supports GDP growth of around 1.6%. Such growth may just about stabilise the debt ratio, but it is nowhere near the pace required to transform living standards or expand the country’s economic capacity.
Even the recent improvement in government revenues owes something to favourable financial conditions rather than deep structural change. Stronger equity markets have lifted receipts from capital gains and corporation tax. Yet the same fiscal projections warn how vulnerable this is to reversal. A sharp fall in equity prices would quickly worsen the public finances. The OBR warns that a 35% correction in UK and global equity markets could widen the current budget deficit by around £26bn in 2027-28. Even a more limited scenario—where UK equities fall by 15%—still adds around £15bn to borrowing.
In other words, the strategy works provided growth improves modestly and financial markets remain cooperative. That is not a robust foundation for long-term prosperity.
Downing Street’s rhetoric is “growth, growth, growth.” The figures point to something more akin to steady, steady, steady, or perhaps more accurately, dull, dull, dull.
Growth is not being unleashed so much as carefully managed. The economic horizon contains little in the way of bold reform or institutional redesign. For a country with Britain’s economic history that is a strikingly modest ambition.
Britain deserves something more.
It cannot tax its way back to economic leadership. Nor can it rely on rising asset prices or modest productivity gains to do the work.
Increasing the economy’s potential for production would be the main goal of a more serious agenda. A tax system that rewards enterprise and investment rather than subtly expanding the middle-class tax base; planning reform that actually increases the supply of housing; and regulatory frameworks that promote innovation rather than administrative caution.
In short, something with the seriousness and disruptive intent of the Big Bang.
Political bravery will be needed for that. It will necessitate a government that is willing to pursue reform even if it goes against long-standing interests. Above all, it will necessitate a political elite that is prepared to acknowledge that cautious maintenance of the status quo is not a viable approach to national renewal.
Britain once set the pace of the global economy. Today it risks settling for the careful management of mediocrity. And that, more than anything else in the fiscal forecasts, should concern us all.
