The Office of Budget Responsibility releases its Economic and fiscal outlook after the Chancellor’s Autumn Statement.
It says in its analysis:
‘The economy has proved more resilient to the shocks of the pandemic and energy crisis than we anticipated. But inflation has also been more persistent and interest rates higher than in March.
‘Higher inflation boosts tax revenues but also welfare benefits while higher interest rates push up debt servicing. But because departmental spending is left largely unchanged, this delivers a net fiscal windfall of £27 billion.
‘The Chancellor spends virtually all of this on a 2p cut in NICs, permanent tax relief for business investment, and further welfare reforms, leaving debt falling by a narrow margin in five years.’
‘More persistent, domestically driven inflation boosts nominal tax revenues compared to
March. But it also raises the cost of welfare benefits, and higher interest rates raise the cost of servicing the Government’s debts.
‘It is mainly due to the Chancellor’s decision to leave departmental spending broadly unchanged that higher inflation and other forecast changes reduce borrowing by £27 billion in 2027-28 compared to our March forecast.
‘The Chancellor spends this windfall on cuts in National Insurance Contributions, permanent up- front tax write-offs for business investment, and a package of welfare reforms, which together provide a modest boost to output of 0.3 per cent in 5 years.
‘He still meets his target to get debt falling as a share of GDP in 5 years’ time by an enhanced margin of £13 billion, but mainly thanks to the rolling nature of the rule giving him an extra year to get there.
And while personal and business tax cuts reduce the tax burden by ½ a percentage
point, it still rises in each of the next 5 years to a post-war high of 38 per cent of GDP.’