Nick Ridpath

At tomorrow’s Budget, take in the overall outlook for the public finances – beyond just one “headroom” number. We use a set of “fiscal traffic lights” to make this easier – you can see back in March these looked relatively concerning, particularly in the short run.

They provide a more nuanced picture of fiscal sustainability than a narrow focus on one or two fiscal rules. Of course, choosing colour thresholds inevitably requires some judgement, and for evaluating past forecasts the traffic lights come with the benefit of hindsight.

Today’s initial ONS data shows that the public sector borrowed £130 billion in the twelve months to September. Higher spending, including on debt interest, has pushed up borrowing above the OBR’s forecast from last March.

With interest rates and inflation expected to remain higher for longer, debt interest spending will continue to put pressure on the public finances. Inflation will also add to pressure on public service spending plans, making this the real challenge for John Healey at the Budget.

There’s been a lot of talk before the budget about the government’s “headroom” – the amount by which it will be meeting its fiscal rules in the OBR forecast. A thread on what we do and don’t know about headroom, and why we should pay less attention to it:

With this much uncertainty, trying to predict headroom precisely is a mug’s game. And with such unpredictable moves from one forecast to the next, undue focus on the exact headroom number is a distraction – the health of the public finances should be considered in the round.

There’s been a lot of talk before the budget about the government’s “headroom” – the amount by which it will be meeting its fiscal rules in the OBR forecast. A thread on what we do and don’t know about headroom, and why we should pay less attention to it:

This doesn’t only reflect the effects of the war in Iran. Even before then, the OBR expected earnings to grow more slowly than other forecasters. But it seems likely that inflation will push up nominal earnings at least slightly.

There’s been a lot of talk before the budget about the government’s “headroom” – the amount by which it will be meeting its fiscal rules in the OBR forecast. A thread on what we do and don’t know about headroom, and why we should pay less attention to it:

Different reasonable judgments on the path of unemployment, migration, disability benefits and other questions could give you very different numbers. Higher inflation adds to this uncertainty, as we don’t know how it will feed through to the real economy.

There’s been a lot of talk before the budget about the government’s “headroom” – the amount by which it will be meeting its fiscal rules in the OBR forecast. A thread on what we do and don’t know about headroom, and why we should pay less attention to it:

The short version is that a prediction of the precise level of headroom is a bit of a lottery. There’s so much uncertainty that there’s really no point focusing on the exact number.

Migration could be quite important at this year’s budget, as falling migration feeds through into the OBR’s forecast and the government’s “headroom” against its fiscal rules. Given this, a thread on how migration affects the public finances:

Zooming out further, migration also has broader impacts beyond its effects on the public finances. Just as for other areas of policy, these wider impacts should also be considered when policy is made.

Migration could be quite important at this year’s budget, as falling migration feeds through into the OBR’s forecast and the government’s “headroom” against its fiscal rules. Given this, a thread on how migration affects the public finances:

In the same OBR scenario of 100k extra migration per year, it estimated that maintaining public service quality could cost ~£3bn in the fifth year of the forecast, or 1/3 of the extra tax revenues. This reflects that in general, spending on working age people tends to be lower.

Migration could be quite important at this year’s budget, as falling migration feeds through into the OBR’s forecast and the government’s “headroom” against its fiscal rules. Given this, a thread on how migration affects the public finances:

At least in the short run, impacts on benefit spending are much smaller: most new immigrants are automatically ineligible for benefits for at least 5 years. This could change in the longer run as more migrants who stay become able to claim benefits if they are eligible.

Migration could be quite important at this year’s budget, as falling migration feeds through into the OBR’s forecast and the government’s “headroom” against its fiscal rules. Given this, a thread on how migration affects the public finances:

One OBR scenario estimated that 100k extra immigrants per year over 5 years (so 500k extra in total) could increase annual receipts by £9bn after 5 years.

Migration could be quite important at this year’s budget, as falling migration feeds through into the OBR’s forecast and the government’s “headroom” against its fiscal rules. Given this, a thread on how migration affects the public finances:

The fiscal impacts of any given rise or fall in migration will depend on the characteristics of migrants, including their age and employment. This will affect tax revenues, benefit spending and public service spending.

Great piece from Max. One noteworthy point on both the VAT cut and today’s bus fare cap is both costs are mostly being covered by cuts to capital spending. There’s a pattern emerging of increasing shifts towards day-to-day spending (and tax cuts) as a focus

There'll be lots of discussion of effect of inflation on households today. But today's ONS figures are a reminder that impact of inflation on broader public finances are also something Andy Burnham and John Healey will have to think about:

With energy supply constraints still around, this may be a story that sticks around: we may continue to see pressure on the debt interest bill - which is already very high by historical standards - over the next few months.

There'll be lots of discussion of effect of inflation on households today. But today's ONS figures are a reminder that impact of inflation on broader public finances are also something Andy Burnham and John Healey will have to think about:

Could the government borrow more to fund investment in infrastructure? There's a case for borrowing for productive investment, but there isn't one simple trick to substantially increase borrowing within the current fiscal rules. A short thread:

They could also try to borrow more within the fiscal rules: at the last forecast, the margin against the debt rule was £27bn - but we've seen in recent years what happens when you get too close to breaching the fiscal rules, so there would be reason for caution there.

Could the government borrow more to fund investment in infrastructure? There's a case for borrowing for productive investment, but there isn't one simple trick to substantially increase borrowing within the current fiscal rules. A short thread:

What PSNFL doesn't include is the government's physical assets - things like buildings, land, or roads or railways. What this means is that if the government borrows more to invest in these kinds of assets, it shows up as higher PSNFL, pushing against the fiscal rules.

Could the government borrow more to fund investment in infrastructure? There's a case for borrowing for productive investment, but there isn't one simple trick to substantially increase borrowing within the current fiscal rules. A short thread:

The government's current debt rule places limits on borrowing for investment: it mandates that Public Sector Net Financial Liabilities (or PSNFL) be falling as a % of GDP in the third year of the forecast - i.e. debt should be coming down by then