Chancellor Rachel Reeves has repeatedly called this a “budget for growth”. Really ?
Over the next two years, yes. But the verdict from the UK's independent official forecaster is that not all of the Budget's measures will boost the economy over the next three to five years.
Increasing National Insurance for employers is putting pressure on disposable income and is likely to affect private investment.
This will be disappointing for the chancellor, but it is not entirely unexpected. She will need the economy to exceed the expectations of the Office for Budget Responsibility (OBR).
His strategy is to try to focus on longer-term infrastructure investments and reforms that will contribute to growth over the next 10 to 15 years.
However, the short and long term growth seems like a small return for such a large budget. And make no mistake, this is a huge budget by any standard.
The increase in spending, of £70 billion a year, is equivalent to 2% of the UK's total economic output and brings the size of the UK state closer to European levels.
This amount is financed half by one of the largest tax hike budgets outside of a recession and half by a significant increase in borrowing.
The increase in national insurance for employers is huge. Public sector employers will benefit from a rebate worth £5 billion. As such, it raises £20 billion a year in total, one of the biggest tax rise measures in history.
It’s also a blame budget. Chancellor Rachel Reeves appeared to be bringing charges against former Treasury ministers for crimes against spending forecasts.
She says the OBR's forecasts in the last budget would have been “significantly different” if the Conservative-led Treasury had been clearer about its spending.
She also claims the Tories covered up the need to increase spending, leaving Labor with a deficit. The repetition of this £22 billion “black hole” sounds like Labour’s version of the famous “there is no money” letter.
This budget will “make a clean sweep of the tax fiction” of the previous government, sources suggest to me. The chancellor listed what she said was compelling evidence that the plans would never be carried out.
What does all this mean? There's a lot to fix – from farmers relying on passing on inheritances from large family farms tax-free to scrapping non-domicile deals which bring in £5bn in a year.
First, public services will receive an immediate injection. A line can be drawn under the years of austerity, at least until a longer-term spending review.
Revenues generated by tax increases are allocated to health spending to deal with record arrears. These now have an impact on the labor market and, by extension, on growth.
Ordinary taxpayers have been spared a new freeze on income tax thresholds. But it's hard not to describe this as a £20 billion tax on jobs. The bet here is that the economy is strong enough to cope.
The markets did not react at first, but then they reacted, with a slight increase in interest rates on public borrowing.
Given rising taxes, spending and borrowing, as well as changes to fiscal rules, the Chancellor is said to have adopted a relatively modest response. But these markets play an important role in setting the interest rates paid by businesses, households and the government.
This is a big change in direction in terms of Britain's economic situation. The additional spending the public seemed to accept given that the pandemic would not recede from continental European levels. This budget also adjusts the UK's tax revenue in this direction.
There is another message in this budget: this is an isolated case.
This is a Budget designed to address what the Chancellor sees as a specific problem in the highly unrealistic spending plans put forward by the Conservatives. We are unlikely to see another budget like this for some time.
