With the Spring Forecast on the horizon, Chancellor Rachel Reeves is preparing to update Parliament on the UK’s current economic status, although in fiscal terms, the announcement is predicted to be somewhat of a non-event.
According to the Treasury, there is little risk of any fiscal changes, although this is raising significant questions and concerns, as to how the gaps in public finances will be plugged.
These pressing economic issues inevitably demand meaningful action, and while it remains to see what this might look like, it is unlikely that there will be further substantial hits to businesses. This will come as welcome news to many, given the higher employment taxes implemented to generate the £25bn of tax receipts has already impacted many businesses.
Instead, it is hoped that the forecast will focus on increasing productivity as a way of balancing the books, and getting the UK’s growth agenda back on track. This may or may not involve extending the freeze on income tax, greater focus on international relations, channelling more political capital into AI and business investment to ‘fire up the entrepreneurial sector’, for starters.
The worst-case scenario involves more tax rises, and this is something the markets may well be demanding, should the fiscal condition continue to deteriorate. However, at this stage policy changes are largely predicted to concentrate on future spending cuts, with a high likelihood of one final rate cut before the end of the year.
Currently, Chancellor Reeves' £9.9 billion ‘fiscal headroom’ has already been used up as a result of low economic growth and high borrowing costs, so the forecast on 26th March may well have a few surprises up its sleeve, should the pressure on the government to jump-start the economy mount sufficiently for them to change their mind. This has happened in the past, and the possibility can’t be ruled out, given the revenue data, the upwards pressure on defence spending and the fact that the BoE expects inflation to remain high for a little while longer.
That said, the Chancellor has made a point of committing to giving ‘families and businesses stability and certainty on upcoming tax and spending changes’ and so rather than the Spring Forecast being significant per se, it is more likely to be a prelude for some ‘big decisions’ in the autumn.