Britain braced for painful second half of the Parliament 29 October 2026 The Parliament is looking like a game of two halves –in terms of the occupants of Downing Street, prospects for living standards, and funding for public services and investment – with Britain looking set for a painful second half, according to the Foundation’s overnight analysis of the Budget 2026. The report Spread Thin dives into the detail of measures announced in the Budget as well as the bigger picture for incomes, the public finances and the wider economy. Key findings on the measures announced include: Limited support leaves energy bills higher this year than during the last energy shock. Typical energy bills net of support are forecast to be £1,750 this year (2026-27) – higher in real terms than during the last energy price shock (2022-23) when net bills were £1,685. Badly targeted support. We estimate that 52 per cent of the whole cost of living package will benefit the poorest half of the income distribution this year and next, with the other 48 per cent going to the top half (equivalent to under £145 on average for poorer households, compared to over £130 for richer households – a gap of less than £15). Computer says no to everyday fixes. The failure to design a targeted energy discount over the past five years has left the UK reliant on 35-year old property valuations to determine eligibility for support with energy bills this winter, while it will take until the start of the next decade to end the cliff edge for workers receiving Carers’ Allowance. Key takeaways on the state of the public finances, the funding of public services and the prospects for family living standards include: UK tax rises stand out globally. The UK’s internationally remarkable consolidation, touted by the Chancellor in his Budget speech, is entirely due to a rising tax take during the current Parliament. The £76 billion improvement in the UK’s primary balance – the gap between receipts and non-interest spending – between 2023-24 and 2028-29 is more than fully accounted for by £107 billion of higher tax revenues. Whitehall gets bigger boost than households. The Budget included a £9 billion top up to departmental budgets over the current spending review period – twice as much as the £4.4 billion cost of living support package. Supposedly things then get tougher. Tight spending plans beyond 2028-29 imply departmental budgets will take more of the strain in the future. But if the 3 per cent defence target is met and real health spending continues to grow at 2.6 per cent, pencilled-in spending totals imply that funding for 13 ‘unprotected’ departments will fall to just 4.7 per cent of GDP by 2031-32, close to the post-austerity historic low. Back to boom and bust on investment. One of the most welcome acts of Rachel Reeves’ first Budget was to raise public sector net investment to 2.9 per cent of GDP in 2027-28. But the boost is set to peter out – falling to 2.3 per cent in 2031-32, below levels inherited from Jeremy Hunt (2.5 per cent in 2023-24). Past gain, future pain for living standards. Median real annual disposable incomes for working age households are set to grow by a paltry £600 over the course of the Parliament. Worse still, those gains are already behind us. Between now (2026-27) and the end of the Parliament (2028-29), typical incomes are forecast to fall in total by £1,050 (3 per cent). Ruth Curtice, Chief Executive of the Resolution Foundation, said: “Faced with a tough backdrop amid global economic turmoil, the Chancellor delivered a scattergun Budget that did little to address the sharp challenges facing Britain. Cost of living support is being spread far too thinly and will leave even those families receiving help facing higher energy bills than they did during the last energy price shock. “Stepping back, this Parliament is increasingly looking like one of two halves, which yesterday’s Budget did little to address. The first half has been marked by rising living standards, solid economic growth and extra funding for public services – funded by huge tax rises – none of which was enough to prevent dramatic half-time substitutions in Downing Street. “The new occupants will hope for better political fortune in the second half, but it could prove tough going against a projected £1,000 fall in disposable incomes. A more dramatic change of tactics may be needed, and we did not learn how the Government will choose between public service ambitions and household incomes. Next year the choices will unavoidably get starker.”
