Nick Ridpath

Breaking revenues down, taxes we might expect to respond more quickly to inflation or wage growth, such as VAT and PAYE Income Tax, haven't come in above either forecast.

If inflation had started to come through, we'd expect to see movement here first, and we haven't. (4/4)

Revenues from March to December are over £3bn below that expected in March, and over £2bn below that forecast at the end of November - a sign that even when incorporating data from the summer, the OBR's forecast still looks optimistic. (3/4)

In November, the OBR forecast higher short-term revenues from inflation and wage growth than previously expected - this was what made the forecast better news for Rachel Reeves than expected.

However, there is still little sign of these higher tax receipts, despite persistent inflation: (2/4)

New ONS public finance figures for December show borrowing from April to December was below 2024, in line with forecasts.

This is good news, but under the hood there's little sign of a pickup in revenues from inflation - an important thing to watch out for going forward. (1/4)

This is important as last month's OBR forecast (no monthly breakdown of this yet) expects a big increase in receipts by 2029/30 from higher inflation, boosting the public finances.

That may materialise, but it’s concerning that it hasn’t yet - one watch out for in the new year

New ONS public finance data today shows central government revenues are still lagging significantly below March expectations.

Given inflation has been higher than forecast, this is surprising - even VAT receipts, which one might expect to rise with inflation, are below forecast

Key thing about the OBR's downgrade then upgrade to revenues: much of it is from inflation and wage growth this year boosting tax take.

While inflation and wage growth are up, we're yet to see any increase in tax revenue in recent public finance data. The government will hope it materialises soon.

Underrated part of yesterday's Budget was what's happening to public service spending in 2028-29. Spending Review settlements reopened just 5 months after the SR to account for loosely-specified 'efficiency savings' of £1.4bn in 28-29 (rising to 4bn in 29-30)

Some early takeaways on the public finances from us @theifs.bsky.social. Really interesting thing to me is that the much-anticipated productivity downgrade didn't end up creating that big an increase in forecast borrowing. This means the policies we've seen today have grown headroom substantially.

One reading of this remark is that the fiscal rule requiring debt to be falling as a share of GDP in 2029/30 is now the one that binds (as cuts to capital spending wouldn't help to meet her borrowing rule). That's entirely possible - and was what we predicted in the IFS Green Budget, as it happens.

If there's one key message for the Chancellor from our analysis published today, it's this:

Doing a bigger package to increase ‘headroom’ wouldn’t be costless – but nor is limping from one forecast to the next under constant speculation that policy will be tightened again.

Risks and challenges for the public finances | Institute for Fiscal Studies We set out the challenges facing the Chancellor from a changing economic and policy outlook, and explore options to stabilise policy going forwards.

We’ve written about this in more detail in our chapter of the IFS Green Budget on the public finances which came out today. You can read it here: ifs.org.uk/publications...

Frequent policy changes lead to overly frequent and overly rushed policy adjustments. Other measures like a range could help, but if the Chancellor wants to stave off the speculation and uncertainty like we’ve seen recently for more than a few months, more headroom is likely to be needed.

The government has a second fiscal rule, the debt rule, which is more volatile, with no plans for a range. Here, the chances of surviving are even slimmer – the £15bn the government had in Spring would be v unlikely to survive for three years.

To hold up over a longer timeframe, such as 3 years, the Chancellor would need far more headroom: £9.9bn would only give a 1 in 4 chance of avoiding further changes. To get above 50%, she’d need around £50bn, around the levels maintained in 2013 & 2014.

Now, from 2027, there will be a range of 0.5% of GDP on the borrowing rule in the Spring, so it binds less tightly. If this were brought forward, it would improve the Chancellor’s chances of not needing further changes to over 80%. But we might want to avoid volatility for longer than six months…

We looked at past revisions to the OBR forecast, and what proportion of them the Chancellor would survive without being bounced into further changes – we find that to withstand 80% of past shocks, she would need around £26 billion of headroom.

With a fiscal “groundhog day” of discussions about how the Chancellor could keep meeting her fiscal rules for the second time this year, we were wondering: what are the chances we could be doing all this again in Spring? The answer: pretty high. Particularly nerdy thread:

At the end of parliament, health funding will be more than 50% higher than in 2010.

Spending on justice, in contrast, will be lower in 2028–29 than two decades earlier despite recent increases. Spending on overseas aid and culture, media & sport will also be lower than in 2010.

Average annual real growth in total departmental spending over this parliament is set to be 2.3%.

This is below the previous parliament’s average of 3.6%, but higher than the last government had outlined.

@beeboileau.bsky.social on the big picture choices in the Spending Review:

Our new Sure Start overview report out today includes a cost-benefit analysis.

These estimates are uncertain (many of the likely benefits haven’t happened yet!) but suggest Sure Start may go 90% of the way to ‘paying for itself’, with additional long-run benefits for children as they grow up

We've built a new IFS tool which can be used to explore what the government spends money on, and where in the UK benefits from that spending. Here it is: ifs.org.uk/calculators/.... Short thread on what you can do with the tool:

OBR productivity growth forecasts have historically been over-optimistic.

They remain above the productivity growth rates seen since 2008 – a downgrade to the OBR's forecast could cause a real fiscal headache for the Chancellor.

NEW: It has been widely reported that the government is looking to make significant savings from the working-age disability and incapacity benefits budget.

How might they do this and what kind of scale of changes would be required?

[THREAD]

New evidence out on the EMA today.

We find that while it did keep more students in full-time education, this didn't pass through to better quals or earnings later in life - in fact, reduced links to the labour market may have even reduced earnings.

Have a read of the thread below and the report 👇