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The dreaded Chancellor’s Red Box has power most MPs will only ever dream of. Within an hour, budget statements can build countries, fight emergencies or crash economies. Does today’s budget act as groundbreaking opportunity for growth in the UK? Does it break glass ceilings with the first woman Chancellor in the UK delivering the budget? Or will it break the bank and cause more uncertainty for the UK?
The Autumn Budget 2024 begins ‘This is a Budget to fix the foundations of the economy and deliver change by protecting working people, fixing the NHS and rebuilding Britain.’ On these four promises (economic foundations, working people, the NHS and rebuilding), the budget has set high targets for itself. As Curia continues to look over the 164-page Autumn Budget, the 198-page Office for Budget Responsibility (OBR) analysis and the many dozens of supporting documents, the initial conclusion is this: this budget will go a long way in fixing the foundations of the economy. The same cannot be said about the budget’s three other aims.
A Budget to Fix the Foundations of the Economy
Since the 2008 financial crash, talk of the town in political-economic circles across the world has often surrounded the state of public finances and services, with austerity implemented across countries. For the UK, Brexit, Covid-19 and war on the European continent have all led to a worsening picture for the public purse (the Truss mini-budget, despite being widely accepted as having displayed poor economic management, has been found to have a low impact on long-term macroeconomics, with a majority of the measures announced having been rowed back or cancelled soon after the announcement).
The new Government therefore faces a difficult choice. Prioritise more funding needed for public services, and suffer the inevitable need for taxes to rise, or vice-versa. For Chancellor Rachel Reeves, the choice has been made. Large fiscal policy changes that allow for greater spending (including tax rises), falling short of a major rethinking of fiscal policy (the changes made by the Chancellor largely use existing tools for taxation and spending, as opposed to new measures which some across political parties have called for).
So how does this all fix the foundations? For those accustomed to ever-gloomy independent reports on the state of public services, or those involved in strike action from public servants, you will be aware of the underfunding that cuts across Whitehall departments. Whilst some may disagree on how to get the funding, and some may disagree as a matter of principle to any level of borrowing from government (the OBR suggests that the current budget deficit will rise by £9.3bn a year), the fact is that Reeves will increase capital and current spending by an average of £69.5bn a year in total – a feat that should not go unrecognised.
However, alongside positive news for spending, comes worries of fiscal risk, highlighted by the OBR. The rising fiscal deficit, risks of short term gain and long-term losses and slightly higher inflation rates will all be points likely latched onto by the opposition parties. In his response to the budget, Sunak was quick to criticise the fiscal policies, particularly the rises in tax.
Useful context for the often dry OBR analysis is the OBR letter sent to Kwasi Kwarteng ahead of the mini-budget in 2022. Reeves’ budget is far off the mini-budget levels of critique from that 2022 letter: ‘inflation is forecast to peak at 13.5% … the economy is expected to enter a year-long recession … headline debt peaks at 100.7 per cent of GDP’.
Whilst the budget was filled with difficult decisions on taxation and borrowing which experts and politicians will scrutinise, the move to ‘fixing the foundations’ has never been clearer. A rigorous budget will go a long way to restoring stability, and eventually, credibility in UK Plc.
A Budget for Everything Else
Whilst the budget has done a lot for fixing the foundations, it overstretches in its attempts to resolve other policy issues. Whilst there are welcome spending commitments on policies ranging from housing, R&D and welfare spending, the truth is that for many of these policies, more money will not, by itself, resolve issues.
On working people – putting aside the definition dilemma of Government Ministers battling to define a working person – this budget does seem to protect workers from the harsh impact of fiscal firepower. Nonetheless, the fact is that many working people will still be facing difficulties. The pre-existing high taxes, raised by the previous Government, will not disappear, and cost of living pressures will neither evaporate.
A similar case exists for the NHS, where the Government has committed a sizeable £22.6bn increase in current spending, with many more £ billions for capital investment. With the Darzi report previously confirming massive levels of underspend in the UK, this increased spending will be welcomed by many in the industry, with the income likely being spent on increasing support for the overworked healthcare workforce. But nonetheless money can only go so far. As highlighted by industry leaders and politicians including Health Secretary Wes Streeting himself, funding needs to be coupled with substantial reform, especially considering the input to the NHS (GPs and diagnosis), the throughput of the NHS (the NHS itself), and the output from the NHS (social care).
And once again on ‘rebuilding’ the UK, the funding commitments on infrastructure development and capital investment, including headline announcements on Euston and the national wealth fund, will be appreciated by industry. However, as many have commented, the challenge facing investment is less the existence of capital, but the regulatory environment in which investment exists. If a developer wants to build something, but it takes 5 years to go through planning permission, I wonder if their patience would stay strong. Reforms pledged by Labour and led on by Deputy Prime Minister Angela Rayner MP, to reform planning regulation in the UK will be an opportunity to boost investment and ‘rebuild’ the UK to a greater extent.
A Big Budget, But What Comes Next?
The budget will now be debated in Parliament, coming to a vote on the 6th of November next week. Whilst it is not usual for a budget to be amended, it is not impossible: Former Shadow Minister and Curia Industrial Strategy Research Group Advisor Paula Sherriff was one of few in UK history to successfully pass an amendment to the ‘finance bill’ (a bill that accompanies budgets), to scrap the 5% VAT on sanitary products.
So, assuming the budget is passed by Labour’s supermajority of MPs in Parliament, all eyes will soon move on. The department spending review of March 2025 will consider departmental budgets for years ahead, whilst Ministers, just over three months into their tenures, will begin unveiling legislative proposals to shape the UK.
Final thought
This budget has made an impact. It has made big changes to the levels of Government spending, taxation and borrowing which will heavily alter the future of public finances and services (in particular providing the much-needed support that many public services need). The Government will now look to complement the budget with effective, non-fiscal legislature (after a long week of spin), to deliver the change the UK voted for… and not a moment too soon. The OBR has forecast GDP in 2028/29 to be lower than what they forecast in March 2024 (or in other words, the Chancellor’s budget is forecast to lead to a long-term decrease in GDP).
With growth being at the heart of Government policy, Starmer and Reeves cannot afford to just ‘fix the foundations. They will need the full machine of Government to kickstart the UK Economy and give them economic credentials they need to continue their electoral success in 5 years.
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