NIESR: An Independent Assessment of the Mini-Budget

23 September 2022

The tax changes announced today, together with recent announcements around support for households and firms in covering their energy costs, mark a significant ‘fiscal event’.

Today the new Chancellor, Kwasi Kwarteng, presented a ‘mini budget’ in which he unveiled ‘The Growth Plan’ that is to be the centrepiece of economic policy for the new government. This mini budget was published against a background of high inflation and recession in the United Kingdom.

• We now forecast that the energy support guarantee, together with the tax cuts announced today, will lead to positive GDP growth in the fourth quarter of this year, shortening the recession and raising annual GDP growth to around 2 per cent over 2023-24.
• The potential inflationary effects of this are likely to lead the Bank of England to raise rates more aggressively than we previously expected. We now expect the Bank rate to peak at around 5 per cent in the third quarter of 2023.
• We expect the extra government spending and tax cuts to increase the government deficit by around £150 billion (roughly 5 per cent of GDP); we now forecast public sector debt to rise to 91.6 per cent of GDP in 2024-25, rather than fall to 87.5 per cent of GDP.
• We welcome the focus on growth and investment but we question whether the measures announced today will reduce regional disparities: while London and the South East have grown by 2.4 per cent per year on average since the financial crisis of 2008-09, the rest of the country has grown by about 1 per cent – well below the target trend growth rate of 2.5 per cent.
• We also welcome government support for household energy bills but we regret that the chosen policy represents a general subsidy for all households rather than targeted assistance for those who need it most, as we have argued in our proposal for a variable price cap.
• We expect that low-income households, which do not qualify for tax credits, pension credits, legacy benefits or Universal Credit, will receive financial help that falls short of the increase in energy bills (nearly £2,000) and in food bills.

NIER

© NIESR