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Related press release
UK fiscal headroom halves to £11bn and may fall to a £7bn deficit
EY analysis suggests that UK fiscal headroom has narrowed to £11bn and could fall to a £7bn deficit if global energy disruption persists
The fiscal backdrop to this year's Budget
This year's Budget will take place against a challenging economic and fiscal backdrop:
- UK growth has held up so far this year but is expected to slow in the second half, as higher energy prices work through the economy. Gilt yields have hit their highest levels this century, pushing up debt service costs. Taxes are already forecast to reach record highs as a share of GDP.
- Manifesto commitments protect the largest revenue sources income tax, National Insurance, VAT and corporation tax rate rises are effectively off the table leaving the Chancellor a narrow pool of revenue-raising options.
- The Government's larger spending ambitions may be highlighted in the Budget but deferred until the economic outlook is clearer, or until after the next election, when new manifesto commitments would apply.
The Chancellor has acknowledged the constraints directly, noting that "the money New Labour had in the nineties is simply not there now."
Two further roadmaps expected on 28 October
HMRC's e-invoicing roadmap
Alongside the Budget, HMRC is expected to publish its long-awaited e-invoicing roadmap a potential major milestone for the UK's e-invoicing journey. It should give businesses greater clarity on the pace required to meet mandatory e-invoicing rules from April 2029.
Fiscal devolution roadmap
The Chancellor has said he will set out a roadmap to fiscal devolution at the Budget. Separately, the House of Lords Economic Affairs Committee is running its own inquiry into fiscal devolution in England, launched in April 2026, with evidence hearings currently underway.