To view our detailed analysis of the Autumn Budget 2024, access Cebr’s latest note here, where we break down the key fiscal measures, revenue implications, and economic forecasts.
The first-ever female Chancellor has delivered her first Budget, one full of both tricks and treats. The state will now be much larger than it was due to be. Still, the government avoided spooking markets by setting out tax plans that would stabilise public finances despite announced giveaways and investment increases.
The scale of tax increases clearly hurts growth. The OBR cut its medium-term growth forecast compared to the March budget. However, given its agreement with the Treasury that the forecast would have been ‘materially different’ with better spending information when putting that forecast together, these numbers are no longer comparable.
Nonetheless, annual growth of around 1.5% in five years would be a bad outcome. It is below Cebr’s current forecast and below the already low growth rates seen before the pandemic. The OBR is known for being consistently overly pessimistic, but it is no surprise that the £40 billion raised in extra public revenues has had a big impact on the economic outlook.
The biggest revenue raiser was the change in employer National Insurance Contributions, which the government expect to raise £25 billion per year by the end of parliament. This more than offsets the total revenue lost from employee NICs cuts in the past two fiscal events. While the overall impact is to shift the tax burden from employees to employers, it is likely that at least a large portion of this is passed on, either in lower wages, or more likely given the tight labour market, in higher prices.
An important detail here is the extra relief offered to small businesses, as our two regular small business trackers in partnership with FSB and Sage both show that small business employment growth continues to underperform compared to official data. However, these reliefs only support the very smallest of businesses and should be extended further.
Rachael Reeves provided a positive surprise by not extending the ‘fiscal drag’, contrary to pre-Budget speculation. The fiscal drag gradually increases people’s personal tax burdens as inflation rises, so while this might not grab headlines in the same way as a rate cut, especially as it doesn’t come in for another few years, it will eventually make a massive difference.
Beyond this, the impact of the Budget on a household’s day-to-day spending will be mixed. The fuel duty freeze will help, as 2023 Cebr research found a 5p increase would lower GDP by around 1% and UK jobs by around 31,000.
Cuts to draught duties are sorely needed by a pub industry suffering from the ongoing cost of living crisis. Still, airlines have not yet fully recovered from the pandemic despite a strong summer, so the increase in air duties seems short-sighted. Further increases in duties on soft drinks and tobacco seem draconian and based on judgements around the consumption of these products rather than the economics of the public expenditure impacts.
For more information contact:
Christopher Breen, Head of Economic Insight – cbreen@cebr.com – 020 7324 2866
Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.