Autumn Budget 2024 – focus on delivery key to achieve ambitious economic growth agenda

Yael Selfin, Chief Economist at KPMG, comments:

"Focus on delivery will be key if the Government hopes to achieve the ambitious agenda unveiled at the Budget.

“The Budget had been billed as a sea change in direction for UK policy, with the state set to play an increasingly larger role in the UK economy. On top of a large expansion of funding for day-to-day spending, higher investment, and an increase in tax, the UK Government now sees itself taking a greater role in driving economic growth. This is a bold plan and state capacity and consistency in delivery will be key if the Government hopes to achieve these lofty ambitions.

“So far, the market reaction has been muted, with yields on 10-year Government bonds remaining unchanged, showing that investors have been sufficiently reassured by the guardrails offered by the Chancellor. While higher borrowing could imply higher interest rates down the line, announcements were largely in line with market expectations earlier in the month.

“The widely trailed change to fiscal rules has provided Rachel Reeves with an additional £49bn of headroom for additional investment, of which she chose to use around £33bn by 2028/29 to ensure that capital budgets do not fall from their current levels as a share of GDP. This increase meets the criteria for no austerity that the Chancellor had set out earlier. However, with investment remaining above its average level, more attention will need to be paid to building up state capacity in order to deliver on these investment plans.

“The revised day-to-day spending envelope has provided extra funding, but this may not be enough room to avoid some cuts to unprotected departments outside of health, defence and aid, with spending now set to rise at a real terms pace of 1.3% from 2025/26 onwards. But this has come at the cost of steep tax rises elsewhere, which threatens to undermine the pro-growth message as most announced tax rises target businesses.

“The tax rises announced in the Budget look set to raise the tax burden to 38.2% of GDP by 2028/29. This would put the UK ahead of the G7 average, albeit still below Scandinavian countries, as well as Germany and France.

“The Chancellor was also partly helped by an improved economic forecast from the OBR, which built- in stronger GDP growth earlier this year. The OBR remains optimistic on the likelihood for a rise in UK long-term productivity, making the outlook used to assess the future state of public finances well above forecasts by the Bank of England and the consensus of professional forecasters. This could prove a mixed blessing, as while it offers more room for manoeuvre now, if growth disappoints, stabilising the level of public debt will become that much harder.”

-ENDS-

For further information please contact:

KPMG Media Relations
Gerard Swinley
gerard.swinley@kpmg.co.uk
M: +44 7510 375540

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