UK Budget - no rabbit

In the last Budget before the general election, the UK chancellor Jeremy Hunt brought Parliament up to date with the story given to the media. Conservative MPs hoping that there would be a big last minute surprise, a rabbit pulled dramatically from the fiscal hat, were disappointed. They will have to be contented instead with the stealing of some of the opposition’s clothes.

The net stimulus in the 2024/25 financial year will be £14 billion, equivalent to roughly 0.5% of GDP, with smaller amounts in following years. The bulk of that election year ‘giveaway’ is accounted for by two measures: the widely-publicised two percentage point reduction in employee National Insurance contributions (£9 billion), and an extended reduction in energy duty (£3 billion).

The Office for Budgetary Responsibility (OBR) 2024 growth forecast is slightly higher (by 0.1 percentage point, at 0.8%) in 2024 than in November, while its inflation forecast is noticeably lower (by 1.4 percentage point, at 2.2%). Since these forecasts are net of today’s policy changes, arguably the underlying near-term nominal GDP outlook for 2024 has worsened, but not by a dramatic amount.

Contrary to some other media commentary, the OBR has not uncovered some sudden deterioration in the fiscal accounts. Its projections for government debt still show the net debt/GDP ratio, as in its November forecasts, peaking in 93.2% in 2026/27 and 2027/28. Given today’s policy changes, this suggests the OBR may even have been positively surprised by the government accounts, though as ever it hides any such surprise well.

Revenue projections do show the effective national tax rate sticking at high levels, but as with the wider debt arithmetic, these are not necessarily the stuff of which economic or financial crisis is made. We continue to suspect that the OBR is overlooking more positive scenarios in its analysis.

As we wrote last year in commenting on its gloomy 50-year (!) projections, long-term fiscal arithmetic is hugely sensitive to small compounded changes in two big numbers (that is, total revenues and expenditures). For an incoming government, there is everything to play for – if they have the economic savvy to see it.

Some specific policy changes will be material for individual investors, including (from 2026/27) the tougher stance on ‘non-dom’ taxation (a policy favoured by Labour), and cuts in the higher rate of capital gains tax on property. But overall, markets are (as usual, and so far) little moved by the policy changes and economic and fiscal forecasts. As we note often, the global business cycle in any case usually matters more to UK capital markets than what happens here.

Ready to begin your journey with us?

Speak to a Client Adviser in the UK or Switzerland

Past performance is not a guide to future performance and nothing in this article constitutes advice. Although the information and data herein are obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, no responsibility or liability is or will be accepted by Rothschild & Co Wealth Management UK Limited as to or in relation to the fairness, accuracy or completeness of this document or the information forming the basis of this document or for any reliance placed on this document by any person whatsoever. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, targets, estimates or forecasts contained in this document. Furthermore, all opinions and data used in this document are subject to change without prior notice.

Read more articles

  • Understanding sustainability risks and opportunities


    Investing is not just about choosing companies that we expect to achieve success in the short term. It’s important to find businesses which can adapt to a changing world and are part of shaping the future. In this article we explore the risks and opportunities they face.

  • Should I form a trust?


    Trusts can be an effective way to provide for your family while retaining control, but you must balance the advantages against the administrative and financial costs. In this article we examine the pros and cons of setting up a trust, and potential pitfalls to avoid.

  • The defence debate

    Strategy Blog

    The events of the last couple of years have dramatically increased the geopolitical temperature, shifting the political discourse in favour of security. In this blog we examine the evolving nature of defence and military equipment, and what it could mean for investors.

  • The last mile

    Perspectives podcast

    The Swiss National Bank's decision to reduce interest rates came as a surprise to the market. Join our Global Investment Strategists to decode central banks' moves, unravel oil market dynamics, and track gold and bitcoin prices.

  • A rebound in corporate earnings?

    Strategy Blog

    Earnings growth is rising in the United States, suggesting the market could have passed a turning point. Ahead of the release of first quarter earnings figures, we consider what this means for investors and examine how earnings expectations can be fallible.

  • Asset Management: Monthly Macro Insights - April 2024

    Market Commentary

    Recent data suggest that inflation could prove persistently high for some time and limit the room for central bank easing. Despite this high-for-long path for policy stances, investors remain convinced it will not prove sufficient to derail global growth.

Back to top