Green Budget 2026: Full report

It is both an honour and a pleasure for Barclays to partner again with the Institute for Fiscal Studies (IFS) on this Green Budget. At a moment of unusual economic and policy uncertainty, the value of rigorous, independent analysis is especially clear. By bringing together IFS’s deep expertise in the public finances with Barclays’ perspective as a global bank rooted in the UK, this report aims to provide a clear guide to the choices ahead.

The backdrop to this Budget is shaped by powerful global forces. Conflict in the Middle East is adding to inflationary pressures and uncertainty. The global interest-rate cycle has tightened financial conditions for households, businesses and governments. At the same time, a new global investment cycle – led by artificial intelligence and other technologies – is beginning to reshape the outlook for productivity, employment and competitiveness.

Barclays is well placed to help interpret these developments. We combine more than 300 years of experience in the UK with an international reach across markets, businesses and economies. Paired with the analytical strength and independence of IFS, that perspective offers a powerful basis for examining how global change is affecting the UK – and what it means for the decisions facing policymakers.

Those decisions now fall to a new set of faces, led by Prime Minister Burnham and Chancellor Healey. Markets, businesses and households will be looking not only at the direction they set, but also at how the detail of their plans compares with the high-level signals given so far. Their ambitions will need to be translated into deliverable policy, backed by transparent assumptions and a durable fiscal framework.

This Green Budget provides a careful assessment of that challenge. Our expert macroeconomists examine how the main global forces are likely to play out in the UK, pointing to slower growth in the near term but a more encouraging medium-term picture. Further analysis also shows that recent movements in financial markets should be understood in an international context, rather than viewed simply as a verdict on UK-specific risks.

With political and fiscal volatility evident across a number of advanced economies, there is value in a Budget that offers stability and as much certainty as possible. That does not mean avoiding difficult choices. It means confronting them clearly, setting credible priorities and creating the conditions in which households and firms can plan, invest and grow. We hope this report helps to illuminate those choices and contributes constructively to the debate around the Budget and the UK’s longer-term economic prospects.

I would like to thank Jack Meaning, Moyeen Islam and Cian Hennigan for their work in putting these chapters together and leading Barclays’ research on the UK economy. And I would like to thank IFS for the opportunity to collaborate once again.

Brad Rogoff
Global Head of Research, Barclays

The Nuffield Foundation is an independent charitable trust that funds and undertakes rigorous research, encourages innovation and supports the use of sound evidence to inform social and economic policy and improve people’s lives.

We are committed to helping build a society that is prosperous and fair, where people are secure and can fulfil their potential, supported by institutions that are effective and trustworthy. The IFS Green Budget contributes to these aims through its forensic, independent and timely analysis of the UK’s fiscal position and the major policy choices that will shape economic performance, public services and living standards. Over the years, the Green Budget has become a highly respected – and much anticipated – point of reference for assessing the key social and economic challenges facing successive governments. By supporting it, the Foundation helps strengthen evidence-informed decision-making and public debate.

In addition to analysis of the economy, the public finances and public spending, each year the Green Budget zooms in on selected topics of particular importance. These in-depth chapters will be of close interest to policymakers ahead of the forthcoming Budget while also strengthening the evidence base for future policy development.

This year, the topics chosen are all of great public interest. They focus on the impact of migration on the public finance forecast, options for reforming personal independence payments, the factors that determine the UK’s electricity prices, and options for how tax-sharing might operate in a more devolved system of governance. All present difficult choices for policymakers. And all are highly relevant to our wider social, economic and fiscal future as well as to people’s day-to-day lives.

The Green Budget continues to play a vital role in informing and scrutinising government decisions, equipping not just policymakers but also those in politics, media, business and civil society with new insights, thereby improving the quality of public debate.

As the government faces increasingly tough economic and fiscal challenges, and our governing institutions are put under greater pressure, the need for external scrutiny is perhaps more vital than ever. We are proud to continue supporting this vital work.

Gavin Kelly
CEO, Nuffield Foundation

Welcome to the IFS Green Budget 2026.  

This year’s edition previews John Healey’s first Budget as Chancellor, which he delivers against a difficult backdrop.

Conflict in the Middle East has pushed up energy prices and inflation. While the economic shock to the UK has not yet been as large as some feared around the time of the Spring Forecast, it is unquestionably bad news for the economy.  

The impact on the government’s finances will depend on exactly how inflation feeds through to different parts of the economy. Higher gilt yields mean spending more to service government debt. Higher inflation also automatically increases government spending on some areas, particularly benefits. But higher inflation will also increase tax receipts, especially if it is reflected in higher wages. Exactly how these effects will balance out in the borrowing forecast the Office for Budget Responsibility hands the Chancellor is unclear. The OBR’s forecast is likely to show that the Chancellor is still on track to meet his fiscal rules before any changes in policy. But even then the public finances will remain in poor health, with debt at historic highs – a very good reason to stick to the commitment to get borrowing down over the coming years.

The Chancellor’s major challenge at this Budget will be setting plans for overall spending that are compatible with the government’s ambitions for public services. John Healey inherits plans for public service spending that already looked tight, and higher inflation will make them even tighter. If he wants to increase defence spending to 3% of GDP by 2030 – his ambition in his former role as Defence Secretary – this will make living inside existing spending totals even harder. For his Budget to be credible, it will need to include spending plans that the Chancellor would be willing to live within.

While Budgets sometimes require a Chancellor to respond to changing forecasts, they also always provide an opportunity to improve the design of the tax and benefit system. In this year’s Green Budget, we explore options for reforming the disability benefit system and for rationalising the UK’s muddled system of energy taxation. In both cases, careful design is needed to ensure that the government’s policies are well targeted and provide households with a sensible set of incentives. We also explore the issues and options for sharing tax revenues with England’s regional mayors – an important part of the government’s devolution agenda – in a chapter supported by the Chartered Institute of Public Finance and Accountancy (CIPFA). In another piece, we investigate how migration feeds into the OBR’s forecast for the public finances, and examine ways this could be improved.

We are pleased to be collaborating with Barclays for a second year running. We thank them for their financial support for the Green Budget and for contributing chapters on the outlook for the UK economy, the bond market, and transfers between HM Treasury and the Bank of England stemming from the Bank’s quantitative tightening programme. These contributions, drawing on Barclays’s own research, provide excellent insights and key context for the rest of the Green Budget’s analysis.

We are also grateful to the Nuffield Foundation for the ongoing funding it has provided to support the Green Budget, as well as for helpful engagement on the IFS-authored chapters. Our principal aims for the Green Budget are also central aims for the Nuffield Foundation: informing the public debate and influencing policy.

The continuing support that the Economic and Social Research Council (ESRC) provides for our ongoing research work via the Centre for the Microeconomic Analysis of Public Policy at IFS (ES/Z504634/1) underpins all our analysis in this collection and is gratefully acknowledged.  

Data from Understanding Society, the Family Resources Survey and the Survey of Personal Incomes are available from the UK Data Service. Researchers can access the Labour Force Survey through the ONS Secure Research Service. This work contains statistical data from the Office for National Statistics (ONS), which are Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. Some of this work was carried out in the Secure Research Service, part of the Office for National Statistics. The data owners and suppliers bear no responsibility for the interpretation of the data in this report.  

As with all IFS publications, the views expressed are those of the named chapter authors and not of the Institute – which has no corporate views – or of the funders of the research. 

Conflict in the Middle East and the subsequent energy price shock will squeeze households and make the economic backdrop to the Budget more difficult.

Read the chapter here. 

Higher inflation, higher government borrowing costs and pressures on public services will be the key challenges faced by the Chancellor at the Budget.

Read the chapter here. 

UK government borrowing costs are high, but recent rises reflect global factors and the attention of the bond markets is currently elsewhere.

Read the chapter here. 

HM Treasury is covering losses as the Bank of England unwinds QE. Recent economic and policy changes affect the scale of losses in the near-term.

Read the chapter here. 

How does the Office for Budget Responsibility incorporate migration into its forecasts of the public finances, and how could this be improved?

Read the chapter here. 

Departmental spending growth is slowing amid pressures on budgets and new spending ambitions. We assess the Chancellor’s choices at this Budget.

Read the chapter here.

We discuss options for reforming personal independence payment, the main disability benefit for adults in England and Wales. 

Read the chapter here.

We explore why UK electricity prices are so high and what reforms can be made to improve the efficiency of the market for and taxation of electricity.

Read the chapter here.

The government has committed to sharing tax revenues with England’s regional mayors. What decisions have to be taken on how this works in practice? 

This chapter has been produced as part of the IFS Green Budget 2026 with funding from CIPFA.

Read the chapter here.