What to expect in the Budget

The main aim is to check out the budget judgement. The starting point is the 2025 Budget forecast for 2027-8, with the Rachel Reeves £164 bn increase in spending,  £66bn of extra tax rises and £ 98bn of extra borrowing added to the outgoing Conservative government plans for 2027-8. It is unlikely the government can add much to the spending and borrowing given the impact of the Fiscal rules and the fragility of the bond market. It is also unlikely they will go for a further large tax hike, as the Reeves ones led to fewer jobs, higher unemployment, higher prices, and enterprising people and money leaving the country.

The OBR revised forecasts may make the position tighter. They may need to increase the inflation assumed driving up costs, increase the allocation for higher interest charges on the debt given the increase in interest rates, and lower the assumption of a housing boom in 2027 based on easier planning rules. There may be some offsets in the slightly better productivity and growth figures achieved this year so far.

The government’s growth strategy rested heavily on more housebuilding and greater public sector investment. This latter has taken time to put through with delays to planned water, rail and energy infrastructure investments, cancellation of some road  schemes and limits on local government capital given  budget pressures. The government is likely to boost the National wealth Fund and British Business Bank and hope they can lever in more private capital. They will use the greater flexibility of the looser Reeves Fiscal rules to keep some of the borrowings for these projects off the balance sheet for debt control.

They will suppress future spending growth by delaying the increases for defence and the extra costs likely from the Milburn review to get more young people into work.

The ideas to ease pressure on family budgets will be small. It is ironic that  they will useBrexit freedoms to lower some tariffs, taxes on UK consumers, whilst trying to realign us with EU rules and taxes that will impede growth.