Autumn Budget 2025

Lord Burns Excerpts

Thursday 4th December 2025 Lords Chamber

[Lord Burns (CB)]

My Lords, from my perspective, the Budget has been received about as well as could have been expected in the circumstances. It also seems to have satisfied the bond markets and the Government’s own Back-Benchers, which is no small feat. It has been clear for months that the background was going to be challenging, given the slow growth evident across the industrial world, and this has left us with a tax base that is not sufficient to fund planned government spending. This has been the pattern for some time.

The Government’s own actions have not helped, of course. The promise not to increase the three main tax rates was never convincing, nor was setting fiscal rules that did not provide sufficient room for manoeuvre relative to the likely scale of forecasting errors. This encouraged speculation and made the interaction with the Office for Budget Responsibility even more sensitive than usual. Flying so many tax-raising kites, and the indecision over whether income tax rates should be increased, did not help either. However, for me, the big question is whether the action taken in the Budget is enough to give us a calmer position for the future, and whether the Government can avoid the same damaging speculation before future Budgets. The Budget margin for the future is considerably larger than that set last year, and that, for me, is very welcome. The OBR gives the headroom a reasonable chance of seeing us through the next year. However, I am less sure about subsequent years, when the margin of error around forecasts is inevitably much larger and often underestimated.

There are other potential problems. I would have preferred to see income tax rates increased now; freezing allowances may be less visible, but it still bites. That comes into effect only in the later years of this Parliament and will disproportionately affect those earning under £35,000 a year.

There has also been much discussion about the fact that taxes have been running ahead of expectations, suggesting that activity has somehow or other been “tax rich”. However, I would be cautious about this. In my own experience in the Treasury, periods of surprising tax buoyancy were often followed by experiences that meant that was not sustained. The bigger challenge is that debt is not coming down decisively, either absolutely or as a percentage of GDP. In no year of the forecast is it below the ratio for 2024-25. The best that can be said is that it is essentially flat. Around 9% to 10% of total government revenues will continue to be spent on debt interest.

The help on prices is in some respects important because it impacts inflation, but it is important too that this is a short-term device. If real disposable income grows as slowly as is forecast, it will still seem like a cost of living crisis.

Getting a grip on public expenditure remains a very important issue. First, we have seen very poor productivity performance in government activities in recent years. Secondly, there is the issue of welfare payments and how to ensure that help goes to those most in need. We need to avoid the perverse incentives that keep some people out of the labour market, and we need more robust controls over those who game the system.

For me, future Budgets should give much more attention to tax reform. We need to iron out cliff-edge disincentives, widen the tax base and close down loopholes. In the absence of a surge in growth around the world, I fear that the job of fiscal retrenchment is not over. We need to make much more progress on reducing the debt ratio during the welcome calmer periods between crises, so that we are in rather better shape when the next problem arises.