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Outlook for public finances broadly unchanged

Author: ICAEW Insights

Published: 07 Mar 2024

Chancellor cuts national insurance again but defers difficult decisions on public spending until after the general election.

The Spring Budget 2024 saw the Chancellor set out the government’s formal budget for the financial year starting in April, as well his plans for taxes and public spending over the following four years. The numbers are broadly unchanged from those presented at the time of the Autumn Statement 2023 last November, with modest improvements from lower interest rates net of inflation combined with some modest tax rises offsetting the cost of reducing national insurance rates by 2% and other tax cuts.

The most notable feature of the Chancellor’s speech was the absence of a ‘spending envelope’ for the three-year Spending Review originally scheduled for this autumn. This has now been deferred until after the general election, and so we therefore don’t know whether the government is really going to cut spending on unprotected public services significantly as the forecasts imply, or whether (if re-elected) it intends to raise taxes in the first Budget after the election, in line with historical practice.

The relatively unchanged economic and fiscal outlook leaves public finances in a vulnerable state, with low levels of economic growth adversely affecting tax receipts, demographic change pushing up the costs of pensions, health and social care, public services under pressure, local authorities in financial difficulty, and a growing interest bill as debt rises.

The Chancellor is hoping that tax cuts will help boost the economy, but that could easily be offset by his decision to make the sums add up by cutting planned public sector investment over the next five years.

Deficits and debt

As set out in Table 1, the shortfall between public spending and receipts is expected to fall from an estimated £114bn in the current financial year ending in March, to £87bn in 2024/25, and then to £39bn in the financial year ending 31 March 2029.

Over the same period, underlying debt (public sector net debt excluding the Bank of England) is expected to increase from £2,447bn on 31 March 2024 to £3,033bn five years later.

Table 1 – Spring Budget 2024 summary

   2023/24 Estimate (£bn) 2024/25 Budget (£bn)  2025/26 Forecast (£bn)   2026/27 Forecast (£bn)  2027/28 Forecast (£bn)   2028/29 Forecast (£bn)  
Taxes and other receipts 1,102   1,139  1,175  1,221  1,272  1,323
 Total managed expenditure   (1,216)  (1,226)  (1,252)  (1,290)  (1,323)  (1,362)
 Fiscal deficit   (114)  (87)  (77)  (69)  (51)  (39)
 Fiscal deficit % of GDP   4.2%  3.1%  2.7%  2.3%  1.6%  1.2%
 Underlying debt   2,447  2,593  2,715  2,832  2,936  3,033
 Underlying debt % of GDP   88.8%  91.7%  92.8%  93.2%  93.2%  92.9%

Sources: HM Treasury, ‘Spring Budget 2024’; OBR, ‘Economic and Fiscal Outlook, March 2024’.

The budgeted deficit of £87bn in 2024/25 is expected to be £27bn lower than the latest estimate for 2023/24, reflecting a £16bn reduction in interest charges, a £7bn reduction in exit payments to the EU, and £4bn from the end of energy support payments, with increases in tax and other receipts broadly offsetting other changes in public spending.

The deficit is then expected to fall gradually over the subsequent four years to £39bn in 2028/29, based on taxes and other receipts growing broadly in line with growth in the size of the economy, at the same time as growth in public spending is constrained. The OBR highlights in its Economic and Fiscal Outlook report published alongside the Spring Budget how this implies real-term cuts in the budgets of unprotected departments in the order of 2.3% a year over the forecast. This level of cuts – at a time of significant pressure on public services – is considered by many commentators to be undeliverable in practice, giving rise to speculation that there will need to be tax rises after the general election, irrespective of which party wins power.

Another concern is about the level of public investment (not shown in the table above) with net investment expected to fall from £67bn in 2023/24 to £53bn in 2028/29. 

Based on these numbers the Chancellor meets his primary fiscal target, which is to see underlying debt as a share of national income fall in the final year of the forecast period. However, he does so only by a very small margin, equivalent to less than £9bn according to the OBR. 

Underlying debt at 92.9% of GDP is still expected to be higher in relation to the size of the economy than the 88.8% of GDP estimated for the end of the current month.

Total borrowing over the next five years is expected to be £1,220bn of which £674bn is needed to repay existing debt as it falls due, £320bn to fund the deficit, and £226bn to fund lending (including student loans) and other cash requirements.

Changes since the Autumn Statement

Table 2 sets out the principal changes between the OBR’s official forecast at the time of the Autumn Statement last November, and its latest forecast published alongside the Spring Budget on 6 March 2024. It highlights how interest charges over the forecast period are expected to be lower than previously assumed, improving the fiscal position, while lower inflation and other assumptions reduce expected cash receipts net of welfare benefits linked to inflation.

Table 2 – Spring Budget 2024 forecast changes and policy decisions

   2023/24 Estimate (£bn)  2024/25 Budget (£bn)  2025/26 Forecast (£bn)   2026/27 Forecast (£bn)    2027/28 Forecast (£bn)   2028/29 Forecast (£bn)   
Forecast – lower interest charges  12  16  15  14  13  14
Forecast – lower inflation and other   (2)  (6)  (5)  (8)  (9)  (13)
Forecast revisions   10  10  10  6  4  1
Policy – national insurance cut   -  (10)  (10)  (10)  (10)  (11)
Policy – other tax cuts  -  (4)  (2)  (2)  (2)  (2)
 Policy – tax increases   -  -  1  3  5  6
Policy – other and economic impact   -  2  1  3  1  2
Policy decisions   -  (12)  (10)  (7)  (6)  (5)
Net change since Autumn Statement  10  (2)  -  (1)  (2)  (4)
November 2023 forecast deficit   (124)  (85)  (77)  (68)  (49)  (35)
March 2024 forecast deficit   (114)  (87)  (77)  (69)  (51)  (39)

Sources: HM Treasury, ‘Spring Budget 2024’; OBR, ‘Economic and Fiscal Outlook, March 2024’.

The £10bn reduction in the estimate for the deficit in the current financial year is consistent with trends seen in the actual numbers reported in the first 10 months. Lower expectations for both interest rates and inflation are the primary drivers in improving the fiscal outlook in subsequent financial years, although the net impact on the forecast reduces over time as predictions for both converge with long-term assumptions. 

One of the reasons the forecast numbers didn’t change that much is that the OBR increased its medium-term assumption for net inward migration from 245,000 to 315,000 per year, offsetting a weakening in anticipated economic growth per capita. While this is fewer than the 670,000 experienced in the year to June 2023, the recent introduction of new restrictions intended to substantially cut immigration numbers is a potential risk to the forecast, especially if per capita economic activity does not improve.

Policy measures are led by the two-percentage point cut in employee and self-employed national insurance rates, which together are estimated to cost around £10bn a year. 

Other tax cuts are expected to cost about £4bn in 2024/25 and around £2bn a year subsequently. These include freezes in fuel and alcohol duties, changes in the high-income child benefit charge, an increase in the VAT threshold from £85,000 to £90,000, and a four-percentage point cut in capital gains tax on property sales from 28% to 24%. The latter change is expected to increase tax receipts by a few hundred million pounds a year as it is expected to encourage more property sales, with higher volumes offsetting lower tax on each sale.

Tax increases principally relate to changes in the tax treatment of non-domiciled individuals resident in the UK (‘non-doms’), the introduction of a duty on vaping and increase in tobacco duty, and an extension of the energy profits levy to March 2029.

Other measures include up to £1bn a year benefit from improvements in tax collection offset by just under £1bn a year of investment in public sector productivity, while the economic impact of policy measures was around £2bn a year, offset by around £1bn a year in additional interest on the additional borrowing used to fund tax cuts.


Bringing down the deficit to £49bn or 1.6% of GDP in 2027/28, and to £39bn or 1.2% in 2028/29, would in theory be the first time the deficit would be below 2% of GDP since 2002/03, a quarter of a century earlier. Unfortunately, there are significant risks to the forecast, with unrealistic spending assumptions and what some economists consider to be overoptimistic economic assumptions that mean that this is unlikely to occur in reality.

Alison Ring OBE FCA, ICAEW Director for Public Sector and Taxation, said: “The Chancellor has pushed back difficult decisions on public spending until after the general election, including dealing with unrealistic cuts in non-protected departmental budgets that are unlikely to be deliverable in practice. Tax rises after the general election are therefore likely, irrespective of who wins power.

“An extensive list of spending announcements, including £5m for the 10,000 village halls in England – equivalent to £500 per hall – contained only a handful large enough to have an impact on the £1.2 trillion budget for the coming year. One positive measure was £4bn in upfront investment to deliver efficiency improvements in the NHS and several other public services.

“Overall, the Chancellor left the outlook for the public finances relatively unchanged as he used a modest improvement in the prospects for inflation and interest rates to cut taxes ahead of the general election. The public finances remain on an unsustainable path in the long term, with public debt expected to be higher in five years’ time than it is today.”

For more information about the tax changes and economic outlook, visit our Spring Budget 2024 site.

ICAEW Analysis of Budget 2024

Webinar: Budget 2024

Listen to ICAEW's Tax Faculty reflect on the Budget announcements and what they could mean for you and your clients.

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