What are the takeaways from the autumn budget in the UK? Given the large increase in taxes and public spending, this budget, announced on October the 30th, marks a break with previous years. According to the OBR (Office for Budget Responsibility), nearly £40 billion and £100 billion of extra revenues and public spending will be generated over the next five years.
On the revenue side, the increase in the National Insurance contributions rate for employers is the most important measure.
We can also mention the increase in tax rate on capital gains and the abolition of the special regime for non-domiciled residents.
In return, the budgets for health and housing will be significantly increased in order to tackle the most pressing issues concerning the NHS and the lack of residential construction across the country. More resources will also be allocated to investment likely to support long-term productivity growth, railway and road infrastructures, green energy with the implementation of a £5 billion programme for carbon capture projects, but we can also mention the significant increase in R&D spending overall.
The creation of two new public entities, namely the National Rail Fund and GB Energy, will help support “these productive investments”.
According to the OBR, this budget will lift GDP growth by 0.5 percentage point over the next two years. The public debt trajectory for its part will start declining over an horizon of three years, which is consistent with the new fiscal rules set by the government.
Previously, the rule was for debt ratio to decline over a five-years horizon. The government also changed its debt target from so-called “net debt” to “net financial liabilities”. Concretely, this new measure includes less liquid assets such as student loans or loans from the term funding scheme from the Bank of England.
This leads to a lower debt ratio than the previous measure and allows more fiscal room for the government, although this latter remains constrained. In a nutshell, Rachel Reeves’ first budget tries to reconcile budgetary adjustment, support to public services and strengthening in the UK's long-term potential growth. It may also offer some sort of new ideas for other European countries which are also facing a difficult situation on the budget and economic side.
