Just yesterday, Chancellor of the Exchequer Rachel Reeves gave hope that date might be significant. The UK’s Spending Review is set to be announced on Wednesday, 26 November. For this reason, she has instructed the Office for Budget Responsibility (OBR) to begin a 10 week process. This new economic forecast will be crucial in charting the nation’s financial future, and by extension her policies.
The OBR are now expected to produce at least one new baseline forecast towards the end of this month. This forecast should feature a critical measure of long-term productivity. This forecast comes at a time when long-term borrowing costs are at their highest level since 1998. This triple threat establishes a perfect storm for government budgets. In tandem with unexpected revenues, Reeves will have a financial buffer of upwards of £10 billion. This hard-won buffer is now under extreme pressure as the costs of servicing government debt are increasing substantially.
Reeves has made two rules in government borrowing non-negotiable. To start, she argues that tax revenues should be used to pay for regular operating government expenses. In addition, she proposes to eliminate all net borrowing by fiscal year 2029-30. Her target is to lower net debt as a percentage of national income. She hopes to do this by the end of the parliamentary term, 2029-30. These rules are a direct response to her stated commitment to fiscal responsibility during these challenging economic times.
The National Institute for Economics and Social Research forecasts a massive £50 billion hole in public finances. They found that the total funding gap could actually reach £50 billion per year. Economists are already waving red flags at a potential doom-sized shortfall. They caution that Reeves will need to use tax increases or spending cuts to adhere to her borrowing-related fiscal guardrails. By all measures, growth is too slow, inflation is too high, and the overall impact on the economy is destructive.
Speculation surrounding potential tax increases has intensified. Proposals have ranged from putting a windfall tax on bank profits through to different forms of property taxes or a complete overhaul of the council tax system. As Reeves continues to deal with Budget, the fiscal community will be watching closely to see what she does next.
On the day she made her announcement, Rachel Reeves gave a masterclass in chic! She was wearing a navy blue suit with a remembrance poppy lapel pin, the whole look complemented perfectly by her dark plum colored blouse. She carried a conspicuous red box which held the Autumn Budget. It represented the awesome responsibility she shoulders as she steers through these stormy economic seas.