Whilst the Chancellor did meet the commitment not to make major tax announcements, there was plenty to say on the economy more generally.
Looking back at the previous year, the Statement focused on a commitment to increasing defence spending, cuts to the welfare state and economic growth. Over the last year, the majority of those cuts to welfare spending were not supported by backbench MPs and the economy has continued to grow slowly, so what did the Chancellor have to say a year on?
The strap line was that current policies mean that the government has the right economic plan for Britain. The Chancellor stated that the “…Spring Forecast has shown that the government’s economic plan to cut the cost of living, cut national debt and grow the economy, is the right one.”
Whilst the speech was highly political, the Chancellor specifically referred to three particular areas to show that the government’s policies were working:
- Cutting the cost of living – the OBR’s forecast shows inflation, borrowing and debt interest are falling, whilst investment is rising.
- Cutting borrowing – the OBR’s forecast shows borrowing is down by nearly £18 billion compared to autumn, with borrowing this year set to be the lowest in six years and falling below the G7 average.
- Growing the economy – the OBR’s forecast shows GDP per person is now set to grow more than was expected in the Budget, with growth of 5.6% over the parliament.
That was what the government said but what did the OBR have to say in its 125-page report? The start of the report stated that the fiscal context for the next Budget will remain challenging, so does this mean even more tax rises? It certainly does not appear that tax cuts are on the way anytime soon.
Highlights of the report were summarised by the OBR:
- Productivity growth will pick up to 1% in the medium term
- Labour supply growth will decline, mainly due to lower net migration and population ageing
- GDP growth will slow down to 1.1% in 2026, before averaging 1.6% over the rest of the five-year forecast
- Inflation will reach its 2% target in late 2026
- Public Sector Net Borrowing is projected to fall from 5.2 % of GDP in 2024/25 to 4.3% of GDP this year and then to 1.6% in 2030/31
- Weekly wage growth will slow to around 3.5% in 2026 and then average 2.25%
- Unemployment will rise from 4.75% in 2025 to a peak of 5.33% in 2026, primarily driven by new entrants into the labour market struggling to find work.
We are keen to see our government set out how and when they anticipate that the wheels they have set in motion will lead to a drive in consistent and notable growth in our economy. Business has a huge part to play but we need businesses to take the brakes off and current policies do not seem to be promoting this.
To boost the economy and restore confidence, a long-overdue review of the Business Rates system is essential. Coupled with other measures, such as reducing VAT for the hospitality sector, these steps could provide vital support. The Government must balance taxation with investment in high street businesses to remove barriers and release the economy from its current stagnation.
Of course, the Spring Forecast is exactly that; for example, the effects of the current situation in the Middle East have not been factored into any of the data released by the OBR. The OBR also makes some other important points:
- The tax-to-GDP ratio is forecast to increase to a post-war high of 38% of GDP in 2030/31
- There continues to be pressures on the government’s departmental spending plans
- There are concerns that the future costs of welfare spending may follow the sharp growth of disability and health caseloads since the pandemic.
To summarise, not a great deal of growth appears to be around the corner.
Public spending is one side of the equation, but taxation is the other, so what does the tax system have to offer over the next year?
