The chancellor introduced two new fiscal rules: a stricter “stability rule” that requires the current budget to balance within three years, but a looser “investment rule” that requires public sector net financial liabilities to be falling as a share of GDP in three years.

Meeting the former rule meant a larger-than-expected £40bn of tax increases, the biggest tax-raising budget in 30 years, which will increase the UK tax take to an all-time high of 38% of GDP by 2029/2030

The biggest measure was an increase in employer national insurance contributions, which may damage the chancellor’s credentials with business. But there were several other tax increases including to capital gains and inheritance tax. 

These fund a roughly similar rise in day-to-day spending, which will increase 1.5% annually in real terms. But after accounting for protected departments such as the NHS and defence, this will feel tight

The latter rule allows for around £100bn of additional investment spending over the forecast horizon, funded by higher borrowing, while still leaving modest headroom for future increases.

While higher investment spending has the potential to increase UK trend growth in the long-run, the Office for Budget Responsibility judged that the combined effects of the measures in this budget were only a modest boost to the level of GDP at the end of the forecast horizon. Meanwhile, the gilt market reaction has been negative.

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