Autumn budget live: Rachel Reeves raises taxes by £40bn and increases spending on NHS and schools
Reeves announces £22.6bn increase in day-to-day health spending
Reeves ends with an announcement about investment in the NHS.
She says day-to-day health spending will rise by £22.6bn, and capital spending by £3.1bn, this year and next year.
She goes on:
So today, because of the difficult decisions that I have taken on tax, welfare and spending, I can announce that I am providing a £22.6bn pound increase in the day to day health budget.
Let me set out what this funding is delivering. Many NHS buildings have been left in a state of disrepair. So we will provide £1bn pounds of health capital investment next year to address the backlog of repairs and upgrades across our NHS to increase capacity for tens of thousands more procedures.
Next, we will provide a further £1.5bn pounds for new beds in hospitals across our country, new capacity for over a million additional diagnostic tests and new surgical hubs and diagnostic centres so that people waiting for their treatment can get it as quickly as possible.
The health secretary will be setting out further details of his review into the new hospital program in the coming weeks and publishing in the new year. But I can tell the house today that work will continue at pace to deliver those seven hospitals affected by the Raac crisis …
And finally, because of this record injection of funding, because of the thousands of additional beds that we have secured, and because of the reforms that we are delivering in our NHS, we can now begin to bring waiting lists down more quickly and move towards our target for waiting times to be no longer than 18 weeks by delivering on our manifesto commitment for 40,000 extra hospital appointments a week.
Key events
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Farmers protest about plan to stop farms worth more than £1m being exempt from inheritance tax
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Resolution Foundation: Budget engages with Britain’s economic challenges, but….
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Campaigners criticise budget for not including social security measures ‘that will seriously bring down hardship’
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OBR: policies at this Budget lower business investment
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IFS: Reeves is taking two big gambles
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Sunak claims budget full of Labour broken promises
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OBR: Budget won’t boost growth over five years
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OBR says Treasury under Tories withheld information about spending pressures, but does not say black hole worth £22bn
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UK bond yields now rising – borrowing costs now at post-election high
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OBR: VAT on private schools will mostly be passed on in fees
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Rise in employers’ national insurance will have negative impact on pay, OBR says
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Regulated rail fares to rise by 4.6% next year
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OBR: Tax take to hit record 38% of GDP, and debt rising too
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UK borrowing costs still lower after budget speech
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Reeves announces £22.6bn increase in day-to-day health spending
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Reeves announces £6.7bn for capital investment in schools
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Move to Persnuffle confirmed
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Reeves confirms debt definition is changing, but says four ‘guardrails’ will ensure extra borrowing is responsible
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Reeves announces £1bn increase in special educational needs funding
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Reeves says freeze in income tax and national insurance thresholds will not be extended, contrary to some pre-budget reports
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Reeves announces 50% increase in air passenger duty for private jets
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Reeves says stricter rules on inheritance tax will raise more than £2bn
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Reeves confirms capital gains tax going up
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Reeves says employers’ national insurance going up to 15%, and threshold falling, raising £25bn a year
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Reeves says crackdown on welfare fraud will save £4.3bn
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Reeeve says budget will raise taxes by £40bn
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Reeves says she is setting aside £11.8bn to compensate infected blood victim scandals, and £1.8bn for Post Office scandal victims
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Reeves says OBR report out today says Tories did not disclose full information about spending pressure at time of last budget
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Reeves says Labour must ‘invest, invest, invest’ to promote growth
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Reeves starts budget speech
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Starmer pays tribute to Sunak’s ‘decency’ at start of Tory leader’s final PMQs
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Kemi Badenoch claims budget will be ‘con trick’ because extra borrowing will mean higher taxes or lower spending
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UK borrowing costs fall ahead of the budget
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CBI says national minimum wage increase could limit business investment
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Rishi Sunak says raising employers’ national insurance would be ‘complete betrayal’ by Labour
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Major tax rises expected as Rachel Reeves prepares to set out first Labour budget in 15 years
Farmers protest about plan to stop farms worth more than £1m being exempt from inheritance tax
Farmers are angry about the announcement in the budget that farms worth more than £1m will no longer qualify for exemption from inheritance tax. After the first £1m, the agricultural property relief available will be 50%, not 100% as it was before.
The National Farmers’ Union believes that farmers will not be able to pass their farms on to their children because inheritance tax bills will be too high.
Jeremy Clarkson, Britain’s most famous celebrity farmer, has posted this on social media.
Rupert Harrison, who was chief adviser to George Osborne when Osborne’s “omnishambles’” 2012 budget was derailed by the pasty tax, says he thinks this is the budget decision most likely to unravel.
But, in its document explaining the move, the Treasury claims that only around 500 families a year are likely to be affected. It says that, by the end of the decade, cutting the agricultural property relief, and reducing business property relief from inheritance tax for shares not listed on recognised stock exchanges, will save around £500m per year. It says:
It is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief. This also contributes to the very largest estates paying lower average effective inheritance tax rates than smaller estates.
Financial markets have been on “a wild ride” since the announcement of the UK’s latest budget, says analysts at investment bank ING.
As we’ve been blogging through the afternoon, UK borrowing costs did initially fall today – as investors welcomed the confirmation of large. tax rises.
But the rally reversed (with UK bond prices falling and yields rising), as the City also digests the sharp increase in borrowing forecast by the OBR.
As dark descends in London, UK 10-year bond yields are up almost 5 basis points at 4.243%, on track for their highest close since late May, in the early days of the general election campaign.
James Smith, developed markets economist at ING, explains:
Now that the full details are available, what immediately stands out is just how much borrowing is projected to rise over the next few years. The Independent Office for Budget Responsibility reckons that borrowing will, on average, be £36 billion (1.3% of GDP) higher each year over the next five fiscal years. That’s a big number, and the updated Debt Management Office gilt remit confirms that will result in a sizeable increase in bond issuance.
That might sound surprising, given the scale of the tax rises. But crucially, not all of the promised £40bn/year extra tax revenue will arrive straight away. In fact, the OBR estimates that only £25bn will show up in the next fiscal year, most of which comes from the hike in employers’ national insurance (social security). The myriad of other revenue-raisers will take more time to show up in full.
Tax rises may be coming through gradually, but the corresponding rise in spending does not. OBR numbers confirm that day-to-day spending will rise by £41bn next year, compared to previous plans. In real terms, that’s an 8% rise in spending across two fiscal years. Capital spending is £18bn higher next year, too.
We’ve argued for some time that the government had little choice but to raise real-terms spending. But what has been delivered is undoubtedly higher than many had expected just a few weeks ago.
Resolution Foundation: Budget engages with Britain’s economic challenges, but….
The Resolution Foundation warns that Rachel Reeves has only taken the “first step” towards tackling the UK’s economic challenges.
Mike Brewer, interim chief executive at the Resolution Foundation, says:
“The first Labour Budget in 15 years was an historic moment, and huge in both tax and spend terms. Rachel Reeves announced £326bn of extra funding for public services and investment across the parliament, funded by the biggest tax rising Budget on record along with extra borrowing.
“The Chancellor has done a reasonable job of ensuring a balanced package of tax reforms. Essentially, she has more than reversed the last Government’s pre-election National Insurance cuts with post-election National Insurance rises. But there are winners and losers in this convoluted policy reversal, with self-employed workers and small businesses being the big winners and firms employing lots of low or very high earners worse affected.
“The Chancellor has delivered a Budget that engages with the seriousness of Britain’s economic challenges. But it is only the first step of what will be needed to secure strong public services, end stagnation, and lift living standards for all.
In their quickfire analysis of the budget, the Resolution Foundation also point out that:
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Rachel Reeves has “largely avoided” the real per-person cuts to unprotected departments implied by Jeremy Hunt’s plans. The £44.1bn boost (in 2029-30) to day-to-day public services spending (RDEL) announced today is the biggest real-terms increase since the 2000 Spending Review.. they say.
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The UK’s projected tax take by the end of the Parliament will be higher than Spain’s today, but lower than Germany and the Netherlands.
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The package of tax rises included “welcome” revenue raising reforms to Inheritance Tax and Capital Gains Tax (CGT), together raising £4.8bn a year by 2029-30, and a major £25.7bn rise in employer National Insurance (NI) contributions, which broadly reverses the employee NI cuts announced by Jeremy Hunt in the run-up to the last election.
Brewer also echoes the concerns voiced by welfare charities today (see previous post), saying:
“And while the Chancellor has confronted Britain’s austerity challenge, she has kicked the can down the road on Britain’s equally pressing poverty challenge until next Spring at the earliest.
A failure to reverse damaging welfare cuts could see over 200,000 more children affected by the two-child limit.”
Campaigners criticise budget for not including social security measures ‘that will seriously bring down hardship’
Campaigners and charities have expressed concern about the measures on welfare announced in the budget.
The Joseph Rowntree Foundation said that, although there were some good announcements in Rachel Reeves’s speech, there was nothing on social security that would “seriously bring down hardship”. Paul Kissack, the JRF chief executive, said in a statement:
It’s deeply worrying that we haven’t seen changes to social security that will seriously bring down hardship. In particular private renters will feel let down by the choice to keep local housing allowance frozen meaning that it will become further out of step with local rent levels, which have soared in recent years.
People receiving sickness benefits also face a fearful future at a time when almost two thirds of those experiencing destitution have a long term health condition. The government has failed to explain how they will save £3bn from the benefits bill and will offer no certainty and more anxiety rather than the respect they deserve.
United Response, a learning disability charity, criticised Reeves for talking about the need for a crackdown on benefit fraud. Sapphire Beamish, its head of communications, said:
It is a poor decision to continue the rhetoric around tightening work capability assessments alongside a ‘crackdown on fraud’.
The negative framing on welfare continues to inflict stigma and increase the worry for people with a learning disability who are left feeling let down that the focus is on saving money over supporting disabled people.
James Taylor, executive director of strategy at disability equality charity Scope, welcomed investment in localised employment support for disabled people, but added:
Bringing in changes based on savings, not on supporting disabled people, will be disastrous.
Ramping up restrictions won’t help support more disabled people into work, it will only make their lives harder.
UK living standards will suffer from the chancellor’s decision to increase the national insurance contributions paid by companies.
The Office for Budget Responsibility estimates that growth in real household disposable income per person, a measure of living standards, will stall in 2026-27 and 2027-28, as firms are squeezed.
[As flagged at 2.43pm, real wages are expected to stall in 2026 and 2027 as firms pass on the cost of their higher NICs bills to their workforce.]
The OBR says:
Real household disposable income (RHDI) per person, a measure of living standards, grows by an average of just over ½ a per cent a year over the forecast.
But the profile is uneven, with strong real wage increases resulting in growth of 1¼ per cent this fiscal year and next before RHDI per person stalls for two years in the middle of the forecast as real wage growth slows and taxes increase.
Compared to our March forecast, the level of RHDI per person is just over 2 per cent higher at the start of the forecast due to data revisions, but 1¼ per cent lower by the start of 2029.
The bulk of this difference (around 85 per cent) is explained by policies announced in this Budget.
The tax rises announced by Rachel Reeves may be at a record high for a budget in cash terms. But, as a share of GDP, the tax rises in Norman Lamont’s 1993 budget were higher, according to Robert Colvile from the Centre for Policy Studies.
Despite the announcement of £1.8bn for childcare, the sector will not do well from the measures in the budget, according to Christine Farquharson, an economist at the Institute for Fiscal Studies. She explains why in this thread.
£1.8 billion looks like a chunky commitment to childcare – and it is.
But this isn’t new money; it’s recommitting to the plans Chancellor Hunt announced in March 2023.
The bigger Budget *change* will be felt in childcare settings’ bills: they face a triple whammy on pay.
We saw two big changes on National Insurance: raising the employer rate from 13.8% to 15%, and cutting the level at which NICs kick in.
That will raise the employer NICs bill for an average full-time childcare worker from £2,200 a year to almost £3,000 – up more than a third.
Public organisations – like schools and colleges – will be compensated for these higher costs.
But although we’re on track for 80% of preschool childcare in England to be publicly funded, it’s largely delivered by the private sector – which won’t see similar protections.
At the same time, the Chancellor announced a big increase in minimum wage from April – 6.7% overall, and 16.2% for those aged 18 to 20.
Big benefits for a low-paid workforce.
But also big pressures on settings, who spend three quarters of their budget on staffing.
Side note – for most of the economy, we expect around 3/4 of the rise in Employer NICs to eventually be felt in lower wages.
That’s harder to do when a lot of your workforce is on (or near) min wage.
And remember – gov’t is also planning a big expansion of workers’ rights, bringing in many protections ‘from day one’ of employment.
That benefits workers starting new jobs.
But in a sector with high turnover, rights from day one will have a disproportionately big impact.
The big question will be whether – and to what extent – these new pressures are reflected in funding rates.
No new money for this in the Budget, so this would have to come from somewhere else. Makes next year’s Spending Review even tougher.
OBR: policies at this Budget lower business investment
Rather damningly for the government, the OBR reckons the budget will not boost business investment.
The watchdog has concluded that the net impact of policies at this budget lowers business investment – with higher taxes hitting profits, and the government ‘crowding out’ private sector opportunities.
As a result, business investment is expected to fall as a share of GDP as profit margins are squeezed.
The OBR explains:
Higher government investment increases incentives for businesses to invest, but in the near term this is more than offset by the crowding out effect of the fiscal loosening in this budget.
Peter Walker
The response from Conservative officials to the budget was necessarily limited – as the spokesperson said, they could hardly comment on specific policies when a new leader will be in place on Saturday, with their own priorities.
The one thing they were happy to say is that the party will refer itself to the statistics watchdog, the Office for Statistics Regulation (OSR), over its repeated election claim that a Labour government would cost the average working household about £2,000 in higher taxes.
The figure was heavily disputed by Labour, and the OSR rebuked the Tories at the time for not making clear how the number was arrived at.
The party spokesperson said that the letter to the OSR would be to explain that the real figure should have been £3,600 per working household, a figure hastily crunched by the Tories after the budget. This was not, journalists were assured, a joke. The OSR might see it otherwise.
Was this a Budget for growth?
The IFS’s Paul Johnson sounds unconvinced, at least in the medium term, saying:
The OBR pointed to a short-term sugar rush, as a result of the debt-financed spending splurge, but that turns into a modestly negative impact by the end of the parliament.
In the longer term, extra investment, planning reform and greater stability should all help to boost growth, and the OBR said as much. They think the Budget will eventually boost output in a sustainable way, but only from 2032.
He adds, though, that Reeves’s has been left with a “truly dire” fiscal inheritance – but wishes she had addressed this with more candour in the election campaign:
The spending plans inherited from the last government were never likely to survive contact with a Spending Review. Tax rises were always a near-inevitability.
The new government’s embrace of fiscal reality is commendable – and would have been even more so had it occurred during the election campaign, and not only after the fact.
IFS: Reeves is taking two big gambles
Paul Johnson, director of the Institute for Fiscal Studies, has released his initial response to Rachel Reeves’s budget.
Johnson says that in “broad brush” terms, this is the budget we’d expected – with big tax rises, more cash for public services, more borrowing and more investment.
He explains:
Tax is now on a path to 38.2% of GDP, its highest level ever in the UK, as the Chancellor seeks to shore up public services. But the Chancellor wanted to go further on spending, and so she’s also topping up public service budgets through borrowing in the next couple of years.
We’re now set to borrow £28 billion more in 2025-26 than previously planned, and to spend £19 billion more on public investment: around a third of the extra borrowing is going towards higher day-to-day spending.
But beyond that, he says the chancellor is taking two big judgements, or “one could say gambles”.
Johnson says gamble number one is that a big cash injection for public services over the next two years will be enough to turn performance around, and that many of the temporary spending pressures won’t persist.
If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.
And the second gamble, is that the extra borrowing will be worthwhile.
Johnson (who will leave the IFS next summer to become Provost of Queen’s College, Oxford), says:
Under pre-election plans we were set to borrow an average of £59 billion per year over the next four years. We now expect to borrow an average of £85 billion.
The hope is that the benefits – from more funding for public services in the next couple of years, and from more public investment throughout the parliament – will more than offset the costs. These costs include higher debt servicing costs but also, according to the OBR, higher inflation and higher interest rates than we’d otherwise have seen. A lot hinges on how well the government spends the money. The additional investment is extremely front-loaded, which doesn’t fill me with confidence on how efficiently it will be spent – if indeed it is spent in that timescale.
Here are four verdicts on the budget from a Guardian panel.
Sunak claims budget full of Labour broken promises
Here are more lines from Rishi Sunak’s response to the budget.
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Sunak, the former PM and outgoing Tory leader, said the budget was full of broken Labour promises.
On the day that he took office, the prime minister said that he wanted to restore trust to British politics with actions, not words.
Well today, his actions speak for themselves with a budget that contains broken promise after broken promise and reveals the simple truth that the prime minister and the chancellor have not been straight with the British people.
Time and again, time and again, we Conservatives warned Labour would tax, borrow and spend far beyond what they were telling the country. And time and again, they denied they had such plans.
But today, the truth has come out, proof that they planned to do this all along, because today’s budget sees the fiscal rules fiddled, borrowing increased by billions of pounds, inflation-busting handouts for the trade unions.
In particular, he said Reeves had broken a promise not to change the fiscal rules.
She specifically told the British people she wouldn’t change the debt target because, and I quote she said, ‘I’m not going to fiddle the figures to get better results’.
But that is exactly what she has done. She has gone back on her word and fiddled the figures so that she can borrow billions more. Broken promise after broken promise, and working people will pay the price.
The chancellor and prime minister have tried to say that they had no choice but be in no doubt, their misleading claims about the state of the economy are nothing but a cynical political device.
Today’s situation is a world away from the genuinely bleak legacy that we Conservatives inherited from the last Labour government.
Borrowing – the Chancellor forgot to point out – borrowing: £1 in every four that they spent. Debt rising every year. And unemployment at 8%.
The OBR has in fact declined to back up her claims of a fictional £22bn black hole. It actually appears nowhere in their report. It is deeply, deeply disappointing that she has sought to politicise the independent OBR that should be above party politics.
Today the Chancellor has launched an enormous borrowing spree, saddling our children and grandchildren with billions upon billions of pounds more debt, pushing up interest rates, leaving our economy more exposed to future shocks and leading the OBR today to now forecast higher inflation in every year of the forecast.
Her decision to let borrowing rip make a total nonsense of her claims on the state of the public finances, because if they were truly in such a dire strait, as she has said, what we should have seen today was a significant reduction in borrowing to repair them, not the splurge that she has just unleashed.
OBR: Budget won’t boost growth over five years
Labour has been insisting that growth is the number one priority of the government – so the new forecasts from the Office for Budget Responsibility are a blow.
The OBR is predicting a pick-up in growth this year, and in 2025… but that’s followed by a slowdown from 2026.
Growth in 2026, 2027 and 2028 is forecast to be lower than expected in March, as this chart shows:
(although Rachel Reeves did insist that any comparison between today’s forecast and the OBR’s March forecast is false, due to the previous government not being straight with the watchdog)
The OBR says:
Having stagnated last year, the economy is expected to grow by just over 1 per cent this year, rising to 2 per cent in 2025, before falling to around 1½ per cent, slightly below its estimated potential growth rate of 1⅔ per cent, over the remainder of the forecast.
Budget policies temporarily boost output in the near term, but leave GDP largely unchanged in five years.
The watchdog adds that tax rises in the budget weigh on real incomes, meaning that private consumption falls as a share of GDP.
A reminder, here are the new forecasts:
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GDP in 2024: +1.1%, up from 0.8% growth forecast at the March budget
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GDP in 2025: +2%, up from 1.9% growth forecast at the March budget
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GDP in 2026: +1.8%, down from 2.0% growth forecast at the March budget
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GDP in 2027: +1.5%, down from 1.8% growth forecast at the March budget
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GDP in 2028: +1.5% down from 1.7% growth forecast at the March budget
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GDP in 2029: +1.6%, a new forecast
Here’s Sky News’s Ed Conway on the reversal we’re seeing in the bond markets, which is pushing up UK borrowing costs….
OBR says Treasury under Tories withheld information about spending pressures, but does not say black hole worth £22bn
The Office for Budget Responsibility has backed up Rachel Reeves’s claim that the last government was not open about the spending pressure in its 2024-25 budget – but it has not specifically endorsed her claim that this amounted to a £22bn black hole.
Reeves made the claim in July, when she published a report saying the Tories were committed to spending £21.9bn this financial year which they did not have funding for. At the time the Office for Budget Responsibility launched an inquiry into whether it was misled by the Treasury about spending pressures when it published its report on the March budget.
Today the OBR has published the results of that inquiry. It concludes:
Up until the March 2024 forecast, the processes for forecasting levels of RDEL [resource deparmental expenditure limits] spending during spending review periods had been largely successful. This was not the case in the March 2024 EFO [economic and fiscal outlook – the OBR report]. The Treasury did not share information with the OBR about the large pressures on RDEL, about the unusual extent of commitments against the reserve, or about any plans to manage these pressures down at the challenge panel. Further information that came to light after this meeting, but before the forecast was published, about pressures on baseline RDEL budgets and the implications of policy decisions announced at the budget, was also not sufficiently shared.
The view of the OBR is that, had this information been made available, a materially different judgement about RDEL spending in 2024-25 would have been reached. The underspend assumption of £2.9 billion would very likely have been dropped, and so there would have been a materially higher DEL forecast for 2024-25 in the March 2024 EFO.
Richard Hughes, chair of the OBR, has summarised the findings in a letter to the Commons Treasury committee. The letter includes a Q&A, which implies that if there was a “black hole”, it was only about half the size Reeves implied.
1. Does your review substantiate the chancellor’s £22 billion claim?
The review found that in the run-up to the March 2024 Budget, the Treasury had information about £9.5 billion of net pressures on departments’ budgets in 2024-25 which it did not share with us.
Had this information been made available, we would have reached a materially different judgement about resource DEL spending in 2024-25.
Chris Philp, a Tory former Treasury minister who is now shadow leader of the Commons, suggests his party has been at least in part vindicated.
If I’m reading it correctly, the OBR note today says the Treasury only submitted a claim that the “black hole” was £9.5b (not £22b) and even that can’t be verified.
UK bond yields now rising – borrowing costs now at post-election high
Back in the bond market, UK borrowing costs are now rising as City investors digest the budget … and the Office for Budget Responsibility’s verdict.
The gilt market rally before, and during, the speech has now unravelled.
This means that the yield (or interest rate) on 10-year UK gilts is now up 10 basis points at 4.4%, having dropped from 4.3% last night to 4.2% earlier today.
That’s the highest interest rate for UK government borrowing since May.
Investors may be concerned that the government is only left with £15.7bn of fiscal headroom in 2029-30 under the new PSNFL debt measure.
They’re probably also unimpressed that growth is forecast to be lower than previously expected from 2026, despite the large increase in spending and borrowing in the budget.
Shamil Gohil, fixed income portfolio manager at Fidelity International, says:
“The gilt market has given back all of its pre-budget morning gains post this afternoon’s speech.
While the Chancellor seems to have struck the right balance between higher tax hikes, higher spending and borrowing to invest in the economy, there are question marks around the fiscal headroom, which looks quite tight, both on the net financial debt rule and current budget surplus, even after easing the rules – overspend is certainly higher than the market expected.
It helps that she has the backing of the Office of Budget Responsibility (OBR) on growth forecasts, however, it remains to be seen if the Labour government can credibly deliver on their plans, and execution risks remain high
OBR: VAT on private schools will mostly be passed on in fees
Rachel Reeves’s decision to introduce VAT on private school fees from January is expected to bring in £1.6bn a year from next year, rising to £1.7bn in 2029-30.
The Office for Budget Responsibility also estimates that it will cut the number of pupils in independent schools by 35,000.
The OBR reckons the effective VAT rate applied will be 15.4%, because schools will be able to recover the VAT on some of their input costs (which could be a windfall for some schools who have invested in buildings and land acquisition in recent years).
The OR estimates that around two-thirds of the cost is passed on through higher fees, just less than a quarter is covered through a reduced service provision, and the remainder is absorbed through cost efficiencies and from profits.
It adds that the VAT change is more likely to deter prospective future new students from entering private schools, rather than driving existing students away, as parents will be more reluctant to disrupt their education.
It adds:
Overall, the costing estimates that as a result of the policy in the steady state there will be around 35,000 (6 per cent) fewer private school pupils, reflecting both leavers and, primarily, fewer new joiners.
The cost of 35,000 additional state sector pupils would be around £300m, based on a £7,690 per pupil cost in England, the OBR adds.