After two Labour Budgets defined by tax rises, John Healey's
first as Chancellor put fiscal discipline first, while still
trying to offer broad-based support. The result is a Budget that
offers something to everyone, but nothing outstanding to any
particular group. We judge that it does little to alter
the UK's underlying growth trajectory.
The reasons for emphasising fiscal discipline are clear
enough. The picture has deteriorated relative to the
last Budget, with higher yields and inflation having pushed
borrowing up before the Chancellor even started planning his
speech. Meanwhile, measures announced today add further to the
load. The fiscal rules continue to be met, but with great
fragility, and any further increase in borrowing costs will eat
up remaining headroom. Key questions on spend are also
outstanding, notably those on defence ambitions.
Prior to making policy announcements, the Chancellor's speech
praised the UK economy's resilience. Though the economy
has grown at a stronger-than-expected rate this year, upward
revisions to forecasts for 2026 mask downgrades for
beyond. Cebr expects growth to be slower in 2027, off
the back of a higher-than-otherwise path for inflation and
interest rates, a view supported by the OBR and consensus panels
Addressing that inflation trajectory and its accompanying squeeze
on finances was a key theme of the speech. Several
measures will have a direct effect on household
wellbeing. For instance, the extension of the VAT cut on
energy bills, the removal of standing charges on gas bills, and
the announcement of one-off £100 payments to millions of
households. Though these measures offer some near-term relief,
they are mostly temporary in nature and will do little to address
the UK's structural dependence on global energy markets.
Until this dependence is reduced, the UK economy will
remain more exposed to global shocks than many of its
peers.
Some longer-term, pro-growth measures were evident in
today's speech, notably the roadmap for fiscal devolution. This
is clearly a defining feature of the new administration, being
led by a former mayor. With 100% of business rates to be
retained locally by the end of the decade and a share of income
tax going to mayors from 2028, these plans could prove
transformational for local growth prospects.
Away from the devolution package, there were apparent
inconsistencies in the progrowth message, a feature shared by
last year's Budget speech. The relief for new founders
sits awkwardly alongside the halving of Business Asset Disposal
Relief, undermining the pro-entrepreneurship message. Meanwhile,
the reversal of last year's cap on cash ISAs, which we had
welcomed as a spur to retail investment, before it has even taken
effect, is a further example of policy churn. The praise heaped
on banks and their support for consumers and enterprises was also
positioned alongside a temporary increase to the bank surcharge
which, though milder than had been anticipated, still seems an
arbitrary burden to be carried by a single sector.
Overall, we at Cebr see little in today's announcements
to lift the UK out of its rut of subpar growth, with next year
set to bring a return to slowdown a view supported by the OBR
release accompanying the speech. Under the current policy path,
the UK remains a high-tax, middle-of-the-road growth economy,
with its near-term prospects more dependent on events in the
Middle East than on decisions in Westminster. No amount of
devolution will change that.
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