2024 UK Autumn Budget: FAI reaction | FAI

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A big tax-and-spend budget, and a lot more borrowing – but looser fiscal rules bail out the Chancellor

This was a big first Budget from Rachel Reeves, and a big rebalancing of Government priorities. Taxes were raised significantly – by an average of £35bn a year from April onwards – but spending has gone up by significantly more, at an average of £70bn. This means that borrowing is up by an average of over £30bn in every year of the forecast.

In the short-term, the Chancellor has opted to borrow an extra £20 billion, allowing spending to rise in-year to combat the short-term pressures and public sector pay decisions she highlighted back in July. Over the longer run, capital spending in particular has been raised by a lot, and we’ll need to wait to see how much of it is delivered – governments being notorious for finding it difficult to disburse large step-changes smoothly.

How does she make this add up? It’s all to do with the changing of the fiscal rules. If she’d maintained the underlying debt rule, she’d have broken it by £6bn. She also leaves less headroom against the current budget surplus than Jeremy Hunt had, and spent three-quarters of her newly found headroom in the debt measure. With such little room to manoeuvre, if many of the highly uncertain revenue raisers don’t bring in as much money as forecast, it’s not certain at all the Chancellor will meet these new rules.

For Scotland, there has been a really significant uplift in spending – largely through the Barnett formula due to higher spending in devolved areas. Funding for day-to-day spending is £1.5bn higher this year, which is likely to make the Scottish Government’s job of balancing its budget significantly easier. Barnett consequentials are £3.4 billion next year as well, of which £2.8bn is day-to-day spending. The Treasury will also be providing compensation for higher staff costs through the NICs measure for public sector employers – our understanding is that this will be in addition to the £3.4billion announced today.

Permanently higher spending as a share of GDP is the main policy change

Government spending as a share of the economy (GDP) is set to inch up from 44.9% to 45.3% this year, before easing slightly to 44.5% by 2029-30— 4.9 percentage points higher than pre-pandemic levels.

This initial increase is driven by added funding for specific programs, such as compensation schemes (infected blood and Post Office Horizon), and rising debt interest costs. Over time, a gradual decline reflects slower growth in departmental budgets and reduced spending on pensions and student loans. Interest and welfare spending are expected to stay steady.

Over 80% of this higher spending comes from the new government’s decision to significantly boost budgets for departments—especially RDEL (day-to-day expenses) and CDEL (investment projects). Previously, spending was expected to decrease slightly by 1% of GDP over the next few years, but with the new changes, department budgets will stay roughly steady as a portion of the economy.

The permanent increase in the size of the public sector is perhaps the most consequential change delivered through this Budget.

Chart 1: Current receipts and public spending as a share of GDP

Source: OBR * Outturn data pre 2023-24 from OBR Public Finances Database

Meanwhile, total public sector receipts (government income – primarily from taxes) rose to 40.5% of GDP in 2023-24, up 3.6% from pre-pandemic levels, and is projected to reach 42.4% by 2029-30. Within this, the “tax take” of national income is forecast to grow from 36.0% in 2023-24 to a peak of 38.3% in 2027-28—a historic high and 5.2 percentage points above pre-pandemic levels—before stabilizing around 38.2%. This latest forecast for tax revenue in 2028-29 is also 1.1 percentage points higher than March estimates.

Do the announcements apply in Scotland?

One of our most requested outputs is always the table of whether an announcement applies in Scotland. This is what we know so far – some detail will be updated as we go:

Some welcome news that the Budget will be permanently moved to the Autumn

During the speech, the Chancellor announced that she’d be holding the Budget every year in the Autumn – and we hope that such a commitment also means a single fiscal event a year, to stop tinkering impulses.

Devolved administrations will be very glad to hear this. Their own budgets depend on decisions taken at the UK Budget, and moving the main fiscal event to before the devolved budgets are presented and scrutinised will give them more certainty and the ability to plan and take meaningful decisions. It also improves Parliamentary scrutiny all around by increasing time for it, and avoids perverse incentives when “March surprises” come after devolved administrations have already had to fix their upcoming year’s budget.

How has government spending changed?

When compared to the March forecasts, total spending is an average of £55 billion a year higher, or around 9.1% over the forecast period.

Resource departmental spending in the latest budget is around £23bn higher this year than what was forecast in March 2024. This rises to an average of £44bn in the four years following this. Capital departmental spending is higher by an average of £20 billion in future years, a huge increase.

Chart 2: Real departmental resource spending, 2007-08 – 2028-29

Source: OBR, HMT

Chart 3: Real departmental capital spending, 2007-08 – 2028-29

Source: OBR, HMT

If we look closer at how government’s spending plans are expected to change each year, it is clear that the approach is heavily front-loaded. Public services will receive a substantial injection of funds in the short term. This year, day-to-day funding for these services is set to grow by 4.8%, with another 3.1% increase in 2025-26. However, after these two years of boosts, spending growth is projected to slow to 1.3% per year. There is clearly a focus on addressing backlogs and immediate needs. But it also raises some questions: will this short-term spending surge be followed by tighter budgets down the line?

Investment spending follows a similar pattern, with a big increase next year (9.8% increase in real terms), a bit more in 2026-27 (3.3%), then levelling off. Still, it is worth bearing in mind that this results in average annual real growth between 2023-24 and 2028-29 of 2.6 %, compared to average annual real falls of 1.1 per cent in the March forecast.

The government’s game plan appears to be front-load the spending now, with a slowdown planned for later. The big bet? That these investments spark enough economic growth in the coming years to give the Chancellor more flexibility down the line.

Chart 4: Annual Changes in day-to-day* and capital** spending since March forecast

Source: OBR, HMT

*Resource Departmental Expenditure Limits

** Capital Departmental Expenditure Limits