Andy Burnham must confront two-decade fiscal funk that is costing Britain £330 billion a year

A triple whammy of weak growth, an ageing population and rising ill-health since 2007 are costing Britain around £330 billion a year today – which is being offset by an unholy trinity of higher taxes, lower public services spending and more borrowing. The new residents of Downing Street need a bold new fiscal strategy to break Britain out of its funk, or else the policy trade-offs will get even more painful, according to major new Resolution Foundation research published today (Thursday).

The great escape examines how Britain got itself into a fiscal funk, and what the incoming Prime Minister and Chancellor need to do to get the public finances back on firmer ground.

The report notes that two decades of weak growth since the financial crisis is a key driver of Britain’s fiscal predicament. The slowdown in GDP per person growth since 2007 has been disastrous for tax revenues which are around £450 billion a year lower. However, this overstates the impact on the public finances as the slowdown has also hit stagnant wages in the private sector, enabling an offsetting squeeze on public sector pay and welfare benefits. All told this leaves the hit from weak growth roughly £240 billion a year.

An ageing population has added another £50 billion hit to the public finances, while rising ill-health over and beyond an ageing population has further increased fiscal pressure. The share of the population in poor health has risen by four percentage points since 2007-08, with ageing only explaining one-fifth of that rise. The cost in terms of higher public spending has grown to an estimated £40 billion, taking the total hit from ageing and ill-health to around £90 billion.

The response to this seismic fiscal hit has been deep cuts to public spending and higher taxes, with extra borrowing plugging the remaining gap.

Day-to-day public services spending is nearly £140 billion below its pre-financial-crisis path, while Britain’s tax-to-GDP ratio last year (2025-26) was at a 75-year high, with the rise since 2007-08 boosting receipts by £90 billion. Over this same period, public sector net debt has almost trebled.

The report says that a new Prime Minister and Chancellor offer the perfect opportunity to change track and break Britain out of its fiscal funk.

The starting point should be a plan to get public debt back on a sustainable path. The good news is that long-run modelling suggests running a current budget balance on average is sufficient to keep debt gently falling over the next 30 years. This is what the government is already committed to achieving – but the next Chancellor needs to move from promising to balance the books in the future to actually delivering it.

A more strategic approach to the size and shape of the state is also needed, and an end to policies that are clearly unsustainable.

The Triple Lock – which is already (in 2026-27) costing £12.6 billion more than an earnings link – should be replaced with a smoothed earnings link. The Government must also beef up reform of motoring taxes. Fuel Duty raised £24 billion last year but is being hollowed out by the switch to electric vehicles. The reforms announced in the Budget last year will need to be built on to replace the lost receipts in years to come. Meanwhile, greater investment in public services can help to address the sector’s damaging drop off in productivity.

Finally, the Foundation warns that the incoming PM and Chancellor are not starting from a position of fiscal strength. The impact of war in the Middle East is likely to have reduced the incoming Chancellor’s headroom against the current fiscal rules from £23.6 billion at the time of the Spring Forecast to just £6 billion today. Any new spending commitments will therefore need to be fully funded.

Simon Pittaway, Senior Economist at the Resolution Foundation, said:

“Britain has been hit by a triple whammy of weak growth, rising ill-health and an ageing population over the past 20 years. Collectively these three hits are costing £330 billion a year and are being paid for by more borrowing, the highest tax burden in 75 years, and huge cuts to public services.

“Britain needs to break out of its fiscal funk and get the public finances back on a sustainable path. Otherwise the choices over which taxes to raise, which public services to ration and how much more we spend on servicing our debt will get even more painful.

“An incoming PM and Chancellor offer the perfect opportunity to start afresh. But they will need to level with the public that popular policies like the Triple Lock ratchet are simply unaffordable. Sounder public finances will also require honesty about the limits of what the state can do, and that everyone needs to pay their part through a more efficient, broad-based tax system.”