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UK Office for Budget Responsibility, new government increases spending by £70bn annually for the next five years

Chair from the Office for Budget Responsibility, Richard Hughes

A quick analysis by the Chair from the UK Office for Budget Responsibility, Richard Hughes, on the Budget announced to Parliament on Wednesday by Chancellor of the Exchequer, Rachel Reeves MP.

The 2024 Economic and Investment Outlook, as from the Office for Budget Responsibility: Against a large unchanged economic and fiscal backdrop, today’s budget delivers a large sustained increase in spending, tax and borrowing, a temporary boost to the economy and a new set of fiscal rules. Here are five things you need to know,

The new government budget increases spending by £70bn per year for the next five years, two thirds of this goes on day to day spending, while one third goes to investment. This means the size of the State as a share of the economy to rise and now settles at 44% by the end of the decade, five percentage points higher than before the pandemic.

Just over half of this is funded by an increase in taxes which raise £36 billion a year in extra revenue, most of which comes from an increase in employers National Insurance Contribution.

These and other taxes changes take the overall burden to 38% of GDP by the end of the decade, its highest level on record. The other half of the increase in spending is funded through extra borrowing which means that total government borrowing falls more slowly and is around 1% of GDP or  £32 billion higher a year over the forecast.

The extra government borrowing delivers a temporary boost to the economy with GDP rising for 1.1% this year to 2%, next year.

But budget policies leave the level of output largely unchanged in the final year of our forecast; To make room for the extra borrowing the government also sets itself two new fiscal rules over the next five years.

The first one is to balance the current budget or the difference between day to day spending and revenues which it meets by a margin of £10 bn.

The second one is to get its net financial liability or the difference between its debt and its national assets, falling as a share of GDP which it meets by a margin of £ 16 billion.