The Office for Budget Responsibility has given its verdict on today’s budget and says that inflation and interest rates will both be higher because of the Budget
It says that interest rates will be 0.25% higher because the markets were unlikely to have anticipated the scale of fiscal easing
Inflation is expected to rise in 2025 ‘partly due to the direct and indirect impact of Budget measures’
It forecasts that this budget will lead to the biggest increase in borrowing outside of a crisis since 1992 – an average of £32.3billion a year
Taxes it says will hit a record level of 38 per cent of GDP by 2029-30, raising £36billion a year in additional revenue
It says that Budget policies will increase spending by almost £70billion – jusr over 2 per cent of GDP a year. It is ‘one of the largest fiscal loosening a of any fiscal event in recent decades’
It also warns that the increase in employer national insurance contributions will ‘reduce Labour supply by 50,000 average hour equivalents’
The budgets provides a ‘temporary’ stimulus which ‘fades to zero’ over the next five years. ‘Taken together, Budget policies leave Feb level of output broadly unchanged’
It also expects companies to pass on ‘most but not all of their higher tax costs to employees’ – despite Labour’s claim it won’t hit their pay packets
It says that 60% of higher costs will be passed on to workers and consumers via lower wages and higher prices
Meanwhile it forecast that two thirds of the cost of imposing VAT on private school fees will be passed on to parents
It estimates that there will be 35,000 few private school pupils as a result of the policy
Paul Johnson from the Think Tank The Institute for Fiscal Studies says that there is a ‘short-term sugar rush’ of growth in the Budget from a ‘debt-financed spending splurge’, but this turns into a ‘modestly negative impact’ by the end of Parliament’
Johnson added that Rachel Reeves’s £25billion national insurance rise for employers will be paid for by workers, Paul Johnson of the IFS says
‘These tax rises party explain why the OBR has downgraded its projections for real household income growth over the next few years. Somebody will pay for higher taxes – largely working people’
