Market Insight

Background

Pre-budget media coverage has focused on the government’s ‘fiscal headroom’ – the leeway that Chancellor Rachel Reeves has to increase spending without breaching fiscal rules. Back in October the headroom was c.£10bn (quite low vs history), but rising government borrowing costs have wiped it out. As a result, the government had recently signalled cuts to spending, such as the £5bn welfare cut last week and a further £0.5bn only this morning. The situation is made all the more tricky by a 50% cut to the UK’s forecasted growth, stubbornly high debt-to-GDP ratios, and a complex geopolitical backdrop, which were all outlined at the beginning of the Chancellor’s speech. More positively, we learnt this morning that UK inflation fell to 2.8% in February, in a boost to the Chancellor.

Policy Highlights

Implications for individuals

• Taxation: Under Reeves’ promise to deliver only one fiscal event per year, taxes were left unchanged, but with promises to crack down on unpaid taxes.
• Property: Plans to streamline permissions and to build 1.3 million new homes over the next five years.
• Welfare: Expected cuts to welfare were announced, including the freezing of various universal credit payments, and stricter eligibility for both incapacity and personal independence payments.

Implications for businesses/national economy

• Public Services: The civil service will be further reduced. Defence spending will increase to meet the pledge of 2.5% of GDP by 2027, including an additional £2.2bn allocation for advanced military technologies and improved housing for armed forces families, funded from lower overseas aid.
• Businesses: No significant announcements, as businesses were seemingly left alone to deal with the 1.2% increase in National Insurance Contributions announced at the last budget (and due 6th April).
• Industries: Aside from defence and housing, the government reiterated its ambition to stimulate innovation and productivity in tech-related industries. A key goal is to create ‘Europe’s Silicon Valley’ between Oxford and Cambridge through infrastructure improvements and streamlined planning.

Investment Opportunities and Outlook

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