Chancellor’s positive vibes can’t hide painful Budget trade-offs 7 September 2026 Responding to the Chancellor’s first major speech on the economy today, Sophie Hale, Research Director at the Resolution Foundation, said: “The Chancellor struck an upbeat tone in a speech that provided a welcome return to emphasising the importance of growth, making the case for greater public and private investment. “Reducing the discount rate the Treasury applies in its investment evaluations should give the green light to more long-term infrastructure projects across the country. This should now be reinforced by expanding the capacity of our public financial institutions, not just ringfencing pots within existing budgets, to provide billions of pounds of extra funding to get more projects off the ground. “But positive vibes can’t hide the painful policy trade-offs facing the Chancellor in his first Budget next month, where he rightly emphasised that fiscal discipline will take centre stage against a backdrop of rising borrowing costs. “While the outlook remains uncertain, the economic fallout from war in the Middle East, higher borrowing costs and unfunded policy commitments could mean that much the £24 billion in headroom against the fiscal rules from March has been wiped out, with new RF analysis suggesting it has fallen to just £5 billion. “This means measures are likely to be needed at the Budget to repair vital fiscal buffers and will bring to a head tough trade-offs on how much the Chancellor can afford to tax and spend.” Notes to Editors The unfunded policy commitments included in the Foundation’s headroom calculation are: Defence Investment Plan (£1.7bn in 2029-30); teachers’ pay (£1.9bn); scrapping the Carbon Price Support (£0.2bn); ending rough sleeping (£0.5bn); and business rates relief for pubs and restaurants (£0.1bn). It does not include the VAT cut on energy bills as this has been presented as a temporary relief.
