Autumn Budget 2024: Initial Ifs Response

31st October 2024

IFS Director Paul Johnson responds to the overall picture for taxation, spending and the public finances in the Autumn 2024 Budget.

IFS Director Paul Johnson said:

"In broad brush strokes, that was the Budget we had been led to expect: big tax rises, more cash for public services, more borrowing and more investment. Look beyond the headline numbers, and there are two big judgements - one could say gambles - that the Chancellor seems to be making.

Let's look at the headline numbers first. She's taxing more. Tax is now on a path to 38.2% of GDP, its highest level ever in the UK, as the Chancellor seeks to shore up public services. But the Chancellor wanted to go further on spending, and so she's also topping up public service budgets through borrowing in the next couple of years. We’re now set to borrow £28 billion more in 2025-26 than previously planned, and to spend £19 billion more on public investment: around a third of the extra borrowing is going towards higher day-to-day spending. By the end of the parliament, she’s promising to borrow only to invest. Meeting that ‘stability rule’ in 2029-30 relies on the assumption that day-to-day public service spending will grow much more slowly from 2026 onwards.

The first gamble is that a big cash injection for public services over the next two years will be enough to turn performance around, and that many of the temporary spending pressures won’t persist. If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.

Which brings us to the second gamble: that this extra borrowing will be worthwhile. Under pre-election plans we were set to borrow an average of £59 billion per year over the next four years. We now expect to borrow an average of £85 billion. The hope is that the benefits – from more funding for public services in the next couple of years, and from more public investment throughout the parliament – will more than offset the costs. These costs include higher debt servicing costs but also, according to the OBR, higher inflation and higher interest rates than we’d otherwise have seen. A lot hinges on how well the government spends the money. The additional investment is extremely front-loaded, which doesn’t fill me with confidence on how efficiently it will be spent - if indeed it is spent in that timescale.

Read the full IFS article with links to more HERE