Britain faces five years of stagnating living standards as inflation and higher taxes bite

Britain faces five years of stagnating living standards as inflation and higher taxes bite, Budget forecasts reveal.

The Office for Budget Responsibility (OBR) downgraded its forecast for real household disposable income – saying it would grow by just a quarter of a per cent a year.

It came as the OBR also cut the UK growth outlook for every year from 2026 and revealed that cumulative borrowing will be nearly £70billion higher than previously thought.

The sluggish outlook for living standards was worse than expected at the time of the Chancellor’s spring statement in March – despite Labour’s claim to be tackling the cost of living.

That is because inflation will be higher than previously feared as well as thanks to the £26billion tax raid announced by Rachel Reeves.

Taxes as a share of GDP will reach an all-time high of 38 per cent.

The OBR’s forecasts, published alongside the Budget, upgraded gross domestic product (GDP) for this year from 1 per cent to 1.5 per cent.

But the outlook for 2026 has been cut sharply from 1.9 per cent to 1.4 per cent and has also been downgraded for every year until 2029.

That is partly as a result of a widely-expected cut in the outlook for productivity growth – the ability to do more with less.

The OBR forecasts that borrowing this year will be £21billion higher than previously expected. It has also been upgraded for the following three years though by 2029-30 will be £6billion lower.  Borrowing for 2024-25 has also turned out to be £12billion more than previously thought.

It means that added together, borrowing is on course to be £69billion higher than predicted back in March, according to the OBR.

And the watchdog said much of that is the result of Labour’s welfare U-turns and net zero policies, which are on course to add £11billion a year to the borrowing bill.

The ‘headroom’ for meeting the Chancellor’s targets to bring down borrowing and debt will double from £10billion to £22billion – but still remains a ‘small margin’ given economic uncertainties, the OBR said.

‘While this Budget addresses some fiscal risks and increases the margin held against the Government’s fiscal targets, it still leaves the UK public finances relatively vulnerable to future shocks,’ the report said.