British Finance Minister Jeremy Hunt presented his annual budget, leaving limited room for reducing public debt, as assessed by the Office for Budget Responsibility (OBR).
The OBR noted that Hunt’s budget plans marginally meet the government’s fiscal objective, aiming to decrease underlying debt relative to economic output by the 2028/29 fiscal year, with a narrow margin of 8.9 billion pounds ($11.3 billion).
This projection represents a decrease from the 13 billion pounds of financial leeway predicted after Hunt’s mid-year fiscal statement in November.
OBR Chair Richard Hughes highlighted the fragility of this financial buffer, pointing out that even minor economic or financial shifts could eliminate it.
Hughes identified several potential risks, including the impact of freezing motor fuel duty—a policy consistently applied since 2011—and increased defense spending to 2.5% of economic output, up from 2.0%, which alone could nullify the financial headroom.
Hughes also mentioned uncertainties in government spending, interest rates, migration, productivity, and potential inflationary pressures from conflicts in the Middle East as additional factors contributing to financial risk.
He emphasized that these uncertainties make the financial outlook precarious.
The budget’s highlight was a reduction in payroll taxes by two percentage points for both employees and the self-employed, an effort by Hunt to bolster the Conservative Party’s standing against the Labour Party in the upcoming national election.
Despite the government’s stringent spending plans, which suggest no real growth in per capita public spending over the next five years while committing to increased spending on major public services, the OBR reiterated its caution about the feasibility of these plans regardless of the ruling party.
Comparing the current financial outlook with that of November, the OBR finds it largely unchanged, though it noted that Britain’s population adjustments and higher inactivity rates imply lower future output per capita.
This nuanced budgetary outlook underlines the challenges facing the UK’s public finances and the tightrope Hunt and future finance ministers must walk to maintain fiscal health.