When it comes to the fiscal outlook, let’s be honest – OBR reports aren’t exactly cheerful reads. They’re designed to highlight risks, not paint a rosy picture. And the July 2025 Fiscal Risks and Sustainability Report sticks to the brief: it’s a stark look at the UK’s economic future, and frankly, it pulls no punches.

But before we panic, let’s add some context. This kind of report is meant to be pessimistic – it zooms in on worst-case scenarios to provoke thought and, ideally, action. It also isn’t a forecast set in stone. Like all economic predictions, it comes with caveats, assumptions, and a good dose of educated guesswork.

Still, it’s a sobering read. So what’s it actually telling us?

The Debt Timebomb

The headline stat is a big one: public debt is projected to hit 270% of GDP by the early 2070s if current policies stay in place.

That’s a huge jump from the current level (around 94%), and it reflects a combination of mounting costs from:

• An ageing population (more pensions, more healthcare)
• NHS demand outstripping tax receipts
• Climate change costs
• Weak productivity growth
• Political reluctance to tackle unpopular issues

The OBR’s view is blunt: if we keep going like this, something will have to give.

There’s No Easy Fix (And Everyone’s to Blame)

One thing the report makes crystal clear is that these issues didn’t appear overnight. They’ve been building for decades, under governments of all colours.

Take the triple lock on state pensions. It’s politically untouchable, but it’s becoming increasingly expensive. Reform it? Good luck winning an election. Same goes for meaningful NHS reform – it might be economically necessary, but politically toxic.

Even Keir Starmer’s recent welfare reform proposals were derailed by his own MPs, showing just how tough it is to balance the books when every cost-saving measure is met with fierce resistance.

Key Risks: What the OBR Report Is Worried About

Let’s break down the main areas the report covers:

Debt & Deficits

• The UK currently has one of the highest borrowing costs among developed economies.
• The fiscal deficit is 5.7% of GDP, well above average.
• There’s limited wiggle room for responding to future economic shocks – we’re already maxing out the credit card.

Climate Change

• If the world warms by nearly 3°C, UK GDP could shrink by 8% by the 2070s.
• Tackling climate change and dealing with its damage could add another 74% of GDP to national debt.

Ageing Population & Pensions

• State pension costs are on track to rise to 7% of GDP.
• The triple lock makes pensions more generous each year, regardless of whether the economy grows.
• Meanwhile, fewer people are in generous workplace schemes, reducing demand for gilts (government bonds) and potentially pushing up borrowing costs.

Cybersecurity

• The OBR is now including cyberattacks as a genuine fiscal risk.
• A serious attack – like those recently targeting HMRC or M&S – could bump up borrowing by 1.1% of GDP.

What Does This Mean for UK Investors?

It’s not all doom and gloom – but there are some clear takeaways if you’re thinking long-term.

1. Interest Rates & Inflation Could Stay Higher

If debt spirals and the government needs to borrow more, investors will likely demand higher yields. That pushes up borrowing costs and could mean interest rates stay elevated for longer than many hope.

2. Tax Hikes Might Be Inevitable

To keep the books balanced, future governments may need to reform the tax system. That could mean higher income tax, tweaks to National Insurance, or changes to pension tax relief.

3. Diversification Is More Important Than Ever

It’s not the time to be overly exposed to any single asset class or market. UK gilts, in particular, may be less appealing if domestic demand continues to fall. Global diversification can help spread the risk.

4. Policy Volatility Is Likely

The next few decades are going to be bumpy. Political resistance to reform might delay action, but eventually the numbers will force the issue. Expect unexpected tax changes, new savings limits, or abrupt shifts in spending priorities.

But Don’t Panic – This Isn’t a Prediction

It’s worth repeating: this isn’t a guaranteed outcome. It’s a warning.

The report doesn’t assume reforms, productivity boosts, or political shifts – all of which are possible. Things could get better if changes are made in time.

Also, many of these risks are already built into modern financial planning. Any half-decent financial planner will account for inflation risk, higher tax potential, and investment diversification.

Final Thought: The Political Elephant in the Room

The OBR is effectively saying: the UK can’t keep doing what it’s doing. But any serious attempt to change course is a political minefield.

It’s hard to win votes by cutting pensions or reining in NHS spending. Yet without reform, future generations face a bigger bill and less room to manoeuvre.

So we’re stuck in limbo – knowing what needs to be done, but unwilling to act until things get worse.

It’s a frustrating place to be – but if you’re an investor or saver, it pays to be aware of the road ahead, even if it’s not set in stone.

Want the Full Picture?

If you’re brave enough, the full OBR Fiscal Risks and Sustainability Report is available on their official website. Just don’t expect an uplifting bedtime read.

If nothing else, it’s a powerful reminder of why good financial planning isn’t just about chasing returns – it’s about building resilience.

And right now, that’s exactly what the UK needs more of.