New Budget, same problems

In our Spring Budget preview slidepack, we assess the economic outlook ahead of Jeremy Hunt’s Spring Budget on March 15th, and explore the policy choices facing the Chancellor in three key areas: cost-of-living support, public sector pay and boosting growth.

We find that there is finally some good news for the Chancellor in the short term: wholesale energy prices are down 80 per cent since the summer, which means the 2023 outlook is much improved, with GDP fall for 2023 likely to be less than half that feared in the Autumn. Borrowing also looks set to come in around £30bn lower than expected in 2022-23.

However, the next year is unlikely to feel like good news for households. Typical household incomes are set to fall by 4 per cent (or £1,100) in 2023-24. This figure includes tax rises of £650 for a typical household from April (£1,500 for the richest fifth).

Looking ahead, the low growth and elevated debt big picture may not change hugely: one key judgement for the Office for Budget Responsibility (OBR) is whether it becomes as pessimistic as the Bank of England (BoE) on labour market participation, which could offset benefits of smaller recession.

If stronger tax receipts this year are forecast to last that could mean somewhat lower borrowing (~£10bn/year), while medium-term public finances would be little changed, with higher debt than expected a year ago and only around £15bn of headroom against the Chancellor’s target of debt falling in 5 years’ time.

• Watch a presentation of this analysis from Resolution Foundation Senior Economist Cara Pacitti and panel discussion with Kate Bell, Assistant General Secretary at the TUC and Chris Giles, Economics Editor for the Financial Times at our Spring budget preview event.