Chancellor John Healey faces fresh calls to raise around £8 billion in taxes at the 28 October Budget after the Resolution Foundation estimated that the government's margin against its fiscal rule has halved from £24 billion to £12 billion.
In its report Hitting the Buffers, published on Tuesday 13 October, the independent think tank warned that higher borrowing costs linked to the conflict in the Middle East have put pressure on the public finances. Its £8 billion figure is a policy recommendation, not a tax increase announced by the Treasury.
Borrowing costs squeeze fiscal headroom
The Foundation estimates that higher debt interest costs will add approximately £14 billion to annual borrowing in 2029–30 compared with the Office for Budget Responsibility's March forecast. It says the impact will be partly offset by higher tax receipts linked to inflation, wages and equity prices, leaving fiscal headroom at an estimated £12 billion.
Fiscal headroom measures the amount by which the government's forecast position meets its own fiscal rules. The £12 billion figure is the think tank's estimate, not a newly published OBR forecast.
Think tank recommends £8 billion in tax reforms
The Resolution Foundation argues that the Chancellor should rebuild headroom to at least £20 billion, maintain existing cash spending plans and raise around £8 billion through changes to the tax system.
Its examples include removing Capital Gains Tax exemptions when assets are transferred on death or when people leave the UK, lowering the VAT registration threshold, and applying National Insurance to partnership income. It also recommends ending the freeze on fuel duty through small, predictable increases.
These proposals are options advanced by the Foundation. The government has not confirmed that any will be adopted in the Budget.
Pressure on household budgets
The report forecasts typical household energy bills could reach around £2,000 a year from January. It proposes temporary energy support averaging £175 for eligible households, at an estimated cost of £2 billion this year, alongside changes to housing support for low-income private renters.
The Foundation also notes that the UK economy grew by 1.1% in the first half of 2026, which it describes as the fastest rate among G7 economies over that period. Its warning therefore combines recognition of recent growth with concern about energy prices and public borrowing costs.
Budget decisions still to come
The Chancellor is due to present the Budget on 28 October. Until the Treasury sets out its measures and the OBR publishes updated forecasts, the proposed £8 billion in tax reforms and the £12 billion headroom estimate should not be treated as settled government policy or official fiscal outcomes.