OBR Warns of Rising Fiscal Risks as UK Debt Climbs to Historic Levels

The Office for Budget Responsibility has published its annual Fiscal Risks and Sustainability report, painting a stark picture of Britain’s mounting financial challenges. The July 2025 report combines what were previously separate assessments into one wide-ranging analysis of the threats facing UK public finances.

The Debt Mountain Keeps Growing

Public sector net borrowing has stubbornly remained around 5% of GDP for the past four financial years. The numbers tell a sobering story – underlying public debt has risen by 24% of GDP over the past 15 years and a whopping 60% over the past two decades.

The OBR warns that Britain’s fiscal position has become “increasingly vulnerable historically and internationally”. Higher interest rates, slower growth and persistent deficits have left the government with limited capacity to respond to future economic shocks.

Three Key Threats Identified

The report zeroes in on three major risks. First, the sustainability of both public and private pensions as the population ages. Second, the government’s balance sheet performance and risks to new public sector net financial liabilities targets.

Third – and perhaps most pressing for future generations – the economic costs of climate damage and achieving net zero emissions. The OBR projects the primary fiscal deficit will be 2% of GDP higher by the early 2070s, with 0.7 percentage points of that increase directly attributable to climate damage.

Government Fights Back with Reforms

Ministers haven’t ignored these warnings. The government has responded by reforming the fiscal framework, including legislating a “fiscal lock” that mandates OBR assessments of major tax and spending changes.

They’ve also shortened the fiscal rules horizon to the third year of forecasts – a move influenced by International Monetary Fund recommendations for greater fiscal discipline through annual OBR assessments.

But the OBR remains sceptical about whether these changes will be enough. The watchdog notes there has been “limited success” in improving public finance sustainability despite various reform efforts.

Climate Costs Loom Large

Chapter 4 of the report updates estimates of fiscal costs for net zero commitments and climate damage – figures that have particular relevance for coastal counties like Kent. The analysis shows how environmental pressures will increasingly strain public finances over the coming decades.

The report represents an evolution from previous separate biennial assessments. Since 2022, the OBR has combined its fiscal sustainability and risks analysis into one annual publication, providing more regular updates on long-term pressures.

Key Takeaways

• UK public debt has risen 60% over 20 years with borrowing stuck at 5% of GDP
• Climate damage alone could add 0.7% to the fiscal deficit by the 2070s
• Government reforms include fiscal lock and shortened budget rules timeline

What This Means for Kent Residents

Kent households should prepare for continued pressure on public spending as the government grapples with these mounting fiscal challenges. Local services funded by central grants – from social care to infrastructure projects – may face ongoing constraints as ministers try to control borrowing. The report’s climate warnings are above all relevant for Kent’s vulnerable coastal communities, where rising sea levels and flooding risks could drive up both adaptation costs and insurance premiums. Residents should consider reviewing their household finances and insurance coverage, while businesses may want to factor potential tax rises or spending cuts into their long-term planning.