In recent times, the most accomplished-seeming Budgets fall apart by the weekend as think tanks and the media get to grips with their contents. The 2012 Budget is one example, but the same issue afflicted numerous Gordon Brown statements.
There is still potential for that to happen today, but less so. The Office for Budget Responsibility’s 251-page “economic and fiscal outlook report”, published yesterday, provides plenty of instant and rigorous analysis on the Budget and Spending Review.
It demonstrates that the headline macroeconomic figures have improved. The economy is projected to grow by 6.5 per cent in 2021 and return to pre-Covid levels by the turn of the year. Debt as a proportion of GDP is likely to peak significantly lower than previously forecast.
The Chancellor, perhaps under duress from Number 10, has decided to spend that windfall. Total departmental spending is now planned to grow by 3.8 per cent per year in real terms over the next three years.
However, stronger growth figures and less borrowing than expected should not be confused for higher living standards. Paul Johnson, head of the Institute for Fiscal Studies, was quick to point out that real household disposable income is set to rise by a measly 0.8 per cent over the next five years, essentially locking in another period of negligible income growth.
The reason for this is straightforward: much, though not all, of the higher spending will be funded by greater levels of taxation — with the UK’s tax burden rising to the highest levels since the Fifties. If Rishi Sunak is, as he suggests, “uncomfortable” with such a scenario, he has an unusual way of showing it.
The second cause of stagnating living standards is inflation. The OBR forecasts inflation to rise from 3.1 per cent in September to an average of four per cent next year, twice the Bank of England’s target rate.
Such widespread price rises reduce the real spending power of households and make interest rate rises more likely as well.
There was precious little in this Budget for the capital. It was more about so-called “London-style” transport settlements in other cities. Given the perilous state of TfL’s finances, the other great cities should check the fine print.
Indeed it appeared the needs of London and our economy were largely overlooked. For example, the cap on business rates relief, set at £110,000 per business, will mean many hospitality venues won’t benefit.
The detail is still being poured over. But ultimately, it is clear that the Tories are in no rush to return the British state to its pre-pandemic size.
Where that leaves Labour, fiscal Conservatives and the long-term sustainability of the UK economic model is an open question.
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