A key promise in Labour’s manifesto was to bring stability to the UK economy and reduce the national debt over the course of the current parliament.
Despite a rocky start to her role as Chancellor and the discovery of a larger than expected blackhole in the public finances, Reeves rose proudly to announce that her fiscal rules were working, even if it meant additional personal and business tax hikes – the “necessary choices” she announced in her pre-Budget speech.
According to the OBR, UK GDP will grow by 1.5 per cent in 2025, which is 0.5 per cent above the forecast from earlier this year.
However, in future years, the outlook is less positive. In 2026 the economy is expected to continue to grow by 1.4 per cent, but this below the previous forecast of 1.9 per cent.
Similarly in 2027, growth will only reach 1.6 per cent, which is 0.2 per cent behind the previous estimate. This trend of slower growth continues through to the end of the current forecast period in 2029.
Despite this slowdown, the Government will reduce its deficit over the next two years and will eventually enter surplus by the 2027/28 tax year. This surplus will continue to grow to £24.6 billion by 2030/31.
The Chancellor was pleased that her decision to increase taxes has more than doubled her headroom to keep within her fiscal rule to balance the budget, from £9.9 billion to around £22 billion.
However, before we get to this point, tough decisions need to be made including a variety of tax hikes in the years ahead.