During a week dominated by news of the Middle East conflict, Chancellor Rachel Reeves presented the UK’s Spring Forecast to Parliament on 3 March 2026.
In her statement, the Chancellor told MPs she had “restored economic stability”, highlighting how the government’s policies are delivering economic growth, particularly when measured by Gross Domestic Product (GDP) per person.
However, the Office for Budget Responsibility (OBR) report presents a more nuanced outlook and suggests the fiscal environment heading into the next Budget will remain challenging.
The OBR also noted that its forecast was finalised as tensions escalated in the Middle East and warned that the conflict could have a “very significant” impact on both global and UK economic conditions.
Summary of the economic outlook
The OBR’s latest forecast highlights several key trends shaping the UK economy over the coming years.
- GDP growth: Economic growth is expected to slow in the short term. GDP growth is forecast to fall from 1.4% in 2025 to 1.1% in 2026, which is 0.3 percentage points lower than the OBR’s November 2025 forecast. However, growth is expected to strengthen over the medium term, averaging 1.6% per year between 2027 and 2030.
- Living standards: Real GDP per person is the measure often used to track changes in living standards. It is forecast to grow at an average rate of 1.1% per year between 2026 and 2030, slightly higher than the previous forecast.
- Unemployment: The unemployment rate is expected to increase from 4.75% in 2025 to a peak of 5.3% in 2026. According to the OBR, this rise is mainly due to new entrants to the workforce finding it harder to secure employment during a period of subdued hiring. Unemployment is then forecast to fall gradually to 4.1% by 2030, although the OBR notes that the long-term impact of AI on employment makes forecasts less certain.
- Public sector net borrowing: Public sector net borrowing is projected to fall from 5.2% of GDP in 2024/25 to 4.3% in 2025/26, before declining steadily to 1.6% of GDP by 2030/31.
As part of the government’s policy of one major fiscal event per year, the Spring Forecast did not include any new tax or spending policies.
However, the OBR’s forecasts provide early indications of future tax and spending pressures.
What the announcement means for tax
From a tax perspective, the OBR’s report suggests that the overall tax burden is set to increase over the remainder of the decade.
Taxes as a share of GDP are projected to reach 38.5% by 2030/31, which would represent a post-war high.
A significant driver of this increase is the continued freeze on income tax thresholds until April 2031. As wages rise over time, more individuals are expected to move into higher tax bands, even if their underlying circumstances remain unchanged.
The state pension and income tax
An additional complication arises from the state pension.
From 2027/28, the state pension is expected to exceed the personal allowance, potentially bringing many pensioners into the income tax system.
The OBR estimates this could result in:
- 600,000 more people paying tax in 2026/27
- Around 1 million additional taxpayers by 2030/31
The government has stated that it does not intend for pensioners whose only income is the state pension to pay income tax during this Parliament, although the practical details of how this will work have not yet been announced.
Employer National Insurance and Hiring
The OBR also notes that the increase in employer National Insurance contributions, which took effect in April last year, is contributing to the higher overall tax take.
These additional costs could influence business hiring decisions, particularly at a time when unemployment is forecast to rise.
Self-Assessment and overseas income
Self-assessment tax payments are expected to rise significantly in 2026/27.This is partly due to the abolition of the non-domiciled tax regime in 2025/26 and the introduction of a temporary repatriation facility.
For individuals with overseas income or assets, it will be particularly important to review tax planning arrangements carefully.
Capital taxes and investment planning
Strong performance in UK equity markets in recent months has led the OBR to expect an increase in capital tax receipts.
For investors holding UK shares, this may be an appropriate time to review investment positions and consider whether:
- crystallising gains
- rebalancing portfolios
- making use of available allowances could improve their tax position.
could improve their tax position.
Any such planning must carefully navigate ‘bed and breakfasting’ rules, which apply when assets are sold and repurchased within a short period.
Why tax planning is becoming more important
The OBR’s report reinforces a clear message: tax planning is likely to become increasingly important over the coming years.
With tax pressures expected to rise, individuals and businesses may benefit from:
- monitoring available allowances
- reviewing the timing of income and capital gains
- making full use of available tax reliefs
Practical steps such as reviewing pension contributions, profit extraction strategies, and how assets are structured within a family may also help manage future tax liabilities.
