Budget Snapshot in a Nutshell
The latest budget buzzes around three key sparks:
- Britain’s sluggish trend growth – still walking below 2%.
- That small‑scale two‑pence cut in National Insurance – sweet, but not a substitute for deeper tax overhaul.
- A public‑investment lull – especially for the non‑ring‑fenced departments that might feel the squeeze in the coming years.
The Economy – A Slow‑Moat
The job numbers have been stuck since spring 2022, but the Office for Budget Responsibility (OBR) reads a hopeful 0.8% growth this year and 1.9% next. They reckon that as inflation keeps easing, households will see their real incomes climb, with consumption nudging up around 2% each year from 2025 to 2028. After a razor‑cut in living standards last year, money per household is projected to hit pre‑pandemic levels by 2025/26 – a snappy two‑year early finish compared to last autumn’s forecast.
Still, the OBR flags a tough medium‑term outlook: trend growth at ~1.75%. That’s shy of the ~2.25% seen before the 2008 crash, and the OBR says that higher immigration is countered by rising inactivity. The Chancellor tried to salvage the mood, claiming the UK has outpaced Germany, Italy and France over the last decade, but the Opposition insists GDP per capita tells a different story.
Bottom line: Western Europe faces similar hurdles. A smarter policy mix could unlock value, especially as growth increasingly tip‑toes toward the Indo‑Pacific. The UK needs to sharpen its competitiveness against the US and vibrant East‑Asian economies that invest hard and keep tax rates in check.
Tax Tweaks – A Glimmer or a Gloom?
This year’s budget was a mix of 40 fiscal moves, with the headline being a two‑pence reduction in employee and self‑employed National Insurance. Most of the tweaks were modest, and a number aimed at raising revenue to keep the Dean’s chair decently occupied. In five years, the Chancellor aims for a tidy £13.9 billion boost – a “modest margin” according to the OBR.
There’s a curious claim in the Red Book: median wage earners (no kids, no benefits) will pay the lowest share of personal tax since 1975. That’s under a structure that includes the modern National Insurance. However, the OBR’s Fiscal Outlook says tax as a share of GDP will climb to 37.1% by 2028‑29 – 4.0% above pre‑pandemic levels, with most of that rise already happening by 2024‑25.
So even though payroll cuts are helping in the short‑term, the overall tax burden is still on the rise. That calls for a clear commitment to simplify and reform rather than just cherry‑pick cuts.
Public‑Spending Quandary – Where the Money’s Going
Controlling the public purse can be broken into five broad levers: boost growth, borrow, curb spending, tax, and reform for productivity. The Chancellor highlighted the last two, echoing Gordon Brown’s mantra about making the civil service faster.
But the reality check: non‑ring‑fenced departments – that’s everything but Treasury – appear set for tightening over the next few years. We must dodge a repeat of the early‑2000s austerity wave, which hammered these departments hard without a long‑term strategy. Even with higher interest rates likely to settle in the future, the pressure on spending is drumming up.
Markets Respond – Not Wild, Just Warming Up
The Budget’s impact on financial markets was muted. Most moves were already priced in, and there were no big surprises. Debt issuance remains heavy – £237.3 billion next year and £265.3 billion the year after, as the government continues to hire bonds.
Interest‑rate expectations are still for gradual cuts starting in Q2. Investors stay attracted by the UK’s appealing valuations, and the new UK ISA and fall‑on‑to‑private‑capital moves aim to make the market more competitive.
Remember, the value of your investments can swing both ways – that’s just how the market works!
