The Week 28 March 2025
Chief Executive
Yesterday we held our usual ‘day after the fiscal statement’ event, reflecting on the Chancellor’s ‘not a budget’ Spring Statement and the OBR’s latest ‘Economic and Fiscal Outlook’. (Stay posted for the recording!)
Everyone will know the top lines: the economic data had deteriorated, the Chancellor’s stability rule was going to be missed by £4.1 billion, some measures (largely welfare cuts, admin savings and boosting tax compliance) have got her back to £9.9 billion of ‘headroom’ (you can read our snap analysis for the detail).
Oh, and this year’s growth forecast has been halved — and while for later years GDP growth is set to be a bit higher, overall cumulative growth is down.
And yet the real message from Wednesday — and one Richard Hughes, OBR Chair, was at pains to stress at our event — is that we really have no idea what the next few years will look like. There’s just too much uncertainty. What will actually happen on Tariff Day? What will actually happen to bank rates and gilts? What will actually happen to productivity? Each of these will have a profound impact on the numbers, and small deviations to the central forecasts will have big bucks attached.
One contributor to that uncertainty that hasn’t received enough attention — and really, really should — is the collapse of the ONS. You can’t build accurate forecasts (perhaps an oxymoron) on crap data. The OBR Outlook consistently cites ONS revisions. Last week the ONS pulled another data set, this time the prices indices, having delayed the publication of trade data earlier in the month. This adds to the failure to provide solid labour market data since 2023. The Resolution Foundation thinks the ONS has ‘lost’ almost a million workers.
Which is all to say that the OBR’s short-term forecasts probably shouldn’t be driving policy.
However there are two areas where we should be focusing more attention.
First, while, and I paraphrase, the sort-term forecasts are not worth the paper they are written on, the long-term ones certainly are. This is the line that anyone who cares about the future of this country should be focused on: “Leaving policy settings unchanged in the long term would see debt rise to over 270 per cent of GDP by the mid-2070s”.
Richard Hughes pointed out that pre-pandemic people thought the idea we would get to 100% of GDP was ludicrous. Which in addition to being awkward, is a lesson. Successive governments’ total failure to grip the fundamental drivers of State cost make us so much more vulnerable to shocks, as well as leaving future generations with an unfundable welfare state (which is the same as saying no welfare state).
Secondly, the Chancellor’s supplementary target on debt is even less likely to be met (51% chance) than that on the current budget (54% chance) — yet it has a direct impact on her ability to meet the latter, and also on those future generations. Public Sector Net Debt is set to remain “largely flat over the forecast”.
We are expected to spend £105 billion on debt interest payments this year, reaching £122 billion by the end of the forecast in 2029-30. Puts in perspective the £5 billion in welfare savings, or the trumpeted extra £2.2 billion for defence in the next financial year.
Reads of the week…
Keeping with the Spring Settlement theme, former Bank of England Chief Economist has a piece in the FT on why a little flexibility on the current budget rule would go a long way, not least in enabling real public service reform.