Analysis of the Spring 2025 OBR forecast

PolicyEngine integrates the new OBR forecasts to provide updated predictions on household income, poverty, and inequality.

Credit: Best for Britain

Today, the Office for Budget Responsibility releases its Spring 2025 Economic and Fiscal Outlook. The OBR is an independent body that produces economic and fiscal forecasts for the UK government.

• The OBR forecasts that income sources will rise across all categories (employment: +£24-29B, self-employment: +£12-25B, non-labor: +£19-43B annually, CPI: +0.3-0.9 annually).
• We project absolute poverty rates will fall (0.2-0.7 percentage points), while income inequality will widen.
• We project that households in the lowest decile will see net incomes 1.9% higher in 2030 under the new forecast than the Autumn 2024 forecast, and households in the highest decile will see net incomes 3.1% higher.
• We project that the average household will have a net income £1,160 (2.5%) higher in 2030 under the new forecast than the Autumn 2024 forecast.
• We project net benefit recipient households will reduce by 0.3-0.5 points (253,000-462,000 fewer households annually).

In this report, we'll integrate the OBR's new Spring forecast into PolicyEngine's tax-benefit microsimulation model, and examine the impact this new forecast (against the Autumn 2024 EFO) on the UK household sector. All impacts below are the impact of this forecast change alone, excluding any policy measures not already in the baseline policy.

In this report we'll focus on the changes to core economic variables: employment income, mixed income, non-labour income, and inflation. The tables below show the prior and new values for these variables (totals, £ billion).

• The employment income forecast by the OBR is used to update wages and salaries in PolicyEngine for future year modelling.
• The mixed income forecast by the OBR is used to update self-employment incomes.¹
• The non-labour income forecast by the OBR is used to update income from savings, investments, and pensions.
• The inflation forecast by the OBR is used to update the price level in PolicyEngine, including policy parameters that are indexed to inflation.

The table below shows the change in public sector net worth as a result of the forecast change (change to government tax revenue forecast minus spending). Public sector net worth (PSNW), defined by the OBR, is the broadest National Accounts measure of the public sector balance sheet in the UK.

In the table below, we report only the change to PSNW implied by the PolicyEngine model, which is the simulated change in tax revenues less government spending on cash benefits implied by the change in the OBR forecast on the four economic metrics above (excluding debt interest spending). We do not account for behavioural responses in this score.

Table 1: Change in public sector net worth (£ billion)

As shown, the OBR forecast update raises the government budget by £110.9 billion over the period 2025-2029. Per year, this is on average £22.2 billion.

The government reports annually on four poverty metrics:

• Absolute poverty before housing costs: households with income below 60% of the 2010/11 median income, adjusted for inflation.
• Absolute poverty after housing costs: households with income below 60% of the 2010/11 median income after housing costs, adjusted for inflation.
• Relative poverty before housing costs: households with income below 60% of the median income in the current year.
• Relative poverty after housing costs: households with income below 60% of the median incomeafter housing costs in the current year .

For each of these metrics, we simulate the change in the poverty rate and headcount as a result of the forecast change.

Table 2: Absolute poverty before housing costs

Table 3: Absolute poverty after housing costs

Table 4: Relative poverty after housing costs

Table 5: Relative poverty after housing costs

We also project income inequality metrics in PolicyEngine's open source model, including the Gini coefficient, the share of income held by the top 10 percent, and the share of income held by the top 1 percent.

Table 6: Gini coefficient

Table 7: Top 10% share

Table 8: Top 1% share

The OBR forecast change lowers net income for some households and raises it for others, due to households having different compositions of income sources and spending. The chart below shows an extract of a thousand randomly-sampled households from our enhanced Family Resources Survey-based microdata, with the x-axis showing the household's income percentile in 2025 and the y-axis showing the change in net income in 2030 as a result of the forecast change.

Figure 1: Change in net income by income percentile

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The chart below shows the relative change in income held by each 2030 household income decile, as a result of the change in the OBR forecast.

Figure 2: Change in income by income decile

The ONS reports on its self-defined net recipient rate. This is the percentage of households that receive more in (cash and in-kind) benefits than they pay in taxes.

The table below shows the change in a similar measure, defined as the percentage of households that receive more in cash benefits than they pay in taxes, as a result of the forecast change.

Table 9: Net recipients by forecast

nikhil woodruff
PolicyEngine's Co-founder and CTO

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