Chancellors play a dual game at each budget, with one eye on the short-term drama and another on the more settled, structural picture. For the first, the Office for Budget Responsibility’s forecasts determine whether the chancellor has a good day. The key variable is its estimate of nominal GDP over the forecast period. This autumn, it handed Rishi Sunak enough of an uplift to ensure that the chancellor had mostly nice options to choose between.

Sunak deserves credit for his pandemic-era support measures, but this pleasant immediate picture is mostly about factors outside his ability to control or foresee. Short term forecasts, tricky at the best of times, have become ever less stable, with so much determined by novel factors like the pace and effectiveness of vaccination programmes. The path ahead depends on the resolution of supply-side blockages – foreseen by precisely none of the best forecasters a year ago.

Government policy, in contrast, works over the long term, and the results seldom show in response to budget announcements. Unlike the immediate forecast, the OBR’s assessment of the potential for the UK economy is eerily stable. This is understandable. What any economy can produce is a function of solid, hard-to-shift characteristics like business investment, the number of workers available, their skills and technological development, and access to markets. These factors do not change much in response to announcements in any one budget. Personally, I cannot recall a significant instance of the OBR upgrading its assessment of the UK’s potential in response to something that the Treasury just unveiled. 

Creating long-term economic growth requires a long-term economic strategy

Like every budget, this one made a show of goosing up the key determinants of growth, with section headings such as “Unleashing innovation”, “Delivering an infrastructure revolution”, and “Boosting skills”. Underneath these sit various challenges, achievements and programmes chosen for emphasis: rockets launched, motorway junctions upgraded, new training courses funded. Yet the OBR’s assessment of what this means for UK potential is effectively nil.

There are good reasons for this. First, the counterfactual to any budget announcement is hard to pin down. Until the government published its multiyear spending review alongside the budget, no one had set out what was the expected level of spending on skills or infrastructure over the next few years and so the OBR’s previous growth path was predicated implicitly on some estimate of what that might have been. Judging that a set of announcements might have improved that path is bold.

There is also usually a rhetoric-reality gap. New commitments are put up in lights. Cuts are consigned to the small print. Former chancellor George Osborne always sounded like a champion of science spending, even while he imposed year-on-year cuts in real-terms resources. For an example from the current government, for all its grandiose talk of a skills revolution [1], it has committed sums towards education that are far from game-changing, and well below what they were in 2010 according to the IFS.[2]

The difficulty of shifting the OBR long term forecast might easily demoralise policymakers. However, it is a mistake to interpret the sensible conservatism of an official forecaster as proof of policy mattering little to growth. Clearly, it matters a lot – you only need to look at the post Brexit-referendum downgrades to see that. But the factors that matter – skills, investment, market access, technology – take decades to shift, and the sensible assumption is that they will not without a determined strategy. 

There is no sense of real government thinking on growth, skills or institutional reform

That is where I am worried. There are plenty of growth strategies available – all of them controversial in one way or another – but no sense of which the current government favours. Take, for example, the challenge of boosting productive investment – a longstanding problem for the UK. Past Tory chancellors might have seen the tax system as their primary tool for achieving this, and Sunak has made tentative steps with an extension of the annual investment allowance, and the temporary super deduction. But he is also persisting with a sharp rise in corporate taxes, despite the leeway provided by the OBR’s new, improved forecasts. Radical ideas such as a permanent extension of the super deduction did not appear to be considered.[3]

The skills picture is similarly muddy. Policy is caught between two competing visions. The first is of Britain as a self-propelled science superpower, pushing its way into cutting edge sectors. The second is epitomised by the prime minister’s insistence that Britons should take more of the lower-wage service jobs that usually employ overseas workers. Neither are wholeheartedly supported. The university sector, a key UK strength, garnered barely a mention in the Budget, and still has the threat of a cut to tuition fees hanging over it. [3Alongside a delay in promised R&D spending, it is hard to see this as an endorsement of the Science Superpower vision for future UK growth. Yet nor are there the resources for the world-leading technical skills system needed for the second vision. Meanwhile, the effect of lost schooling and training through the pandemic is yet to be properly addressed.

Or consider institutional reform. You would expect a government defined by exit from the EU to have a strong theory for how institutional settings affect growth – as the Thatcher government did, as it pursued profound reforms to competition policy, the Single Market and labour markets. This government shows glimmers of interest here – such as through reforms to the competition system to address digital markets – but there is no overriding vision. Moreover, any pro-markets impression is confused by the more inward-looking vision of self-reliance that the prime minister has appeared to promote.

There is much commentary written about how this is not the Conservative party of old, in its attitude to tax, spend and the role of the state. Rishi Sunak, goes the charge, claims to want to be a Nigel Lawson of the late 1980s, but delivers a budget like Labour’s Gordon Brown in his pomp. Maybe this approach is smart politically, robbing the opposition of comfortable ground to fight from. But when it comes to tackling long term challenges, such ideological ambiguity looks more like just not knowing the answer.



  1. See PM speech
  2. “UK Budget fails to deliver ‘skills revolution’, say education leaders”, Financial Times, 29 October 2021
  3. See Nick Hillman comment on non-response to the Augar Review in the Budget HEPI comment on the Budget and Spending Review – HEPI


Original source – The Institute for Government

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