Stopgap Spring Statement leaves problems unresolved

The Spring Statement delivered on Wednesday 26 March is likely to prove a stopgap ahead of a more comprehensive overhaul of UK fiscal policy in this autumn’s Budget.

What you will learn:

• The Chancellor blamed global instability for the deterioration in the Office for Budget Responsibility’s economic and fiscal forecasts. But the need to take remedial action was a consequence of leaving so little headroom in October’s Budget, and the new plans leave a similarly slim margin for error in 2029-2030.
• We already thought the OBR’s potential output forecasts were too optimistic, and today it upgraded them further after incorporating the impact of the government’s planning reforms. After years of productivity growth disappointing, we think the risks are heavily skewed towards a worse outcome.
• The new plans assume the government will increase defence spending to 2.5% of GDP. But the NATO target will likely rise to 3% or more, forcing the government to choose between further tax rises, greater spending restraint, or changing its fiscal rules yet again.