Press release
Autumn Budget 2024: Head of Economic Consulting reaction
30 Oct 2024
Schellion Horn, Head of Economic Consulting at Grant Thornton UK LLP, said:
“While the cost of government borrowing had risen slightly in advance of today’s Budget, in anticipation of further borrowing, the reaction of the financial markets to the announcement today has so far been mixed. This is likely due to the recent government narrative which had been increasingly pessimistic about the state of public finances and the £22bn spending gap, warming up businesses and the financial markets to the limited incentives likely to be on offer to businesses in the Budget and the likelihood of higher taxes - which we saw today.
“We knew ahead of the Budget that the Chanceller was proposing to paint a more optimistic forward-looking picture and change the fiscal accounting rules to free up money for the government to invest and jump start the economy, out of what she referred to as the low investment, low growth, ‘loop of doom’. Changing the definition of using public sector debt net of financial liabilities (PSNFL), under which investments such as the government's student loans book are defined, as assets rather than liabilities, gave the Chancellor significantly more room to play with. Since she retained the second fiscal rule under which day-to-day spending must be funded from government revenue (not borrowing), this led to much of the additional borrowing being pointed towards infrastructure projects.
“With the key theme of the Budget being ‘invest, invest, invest’ to drive growth, the focus on infrastructure is very welcome, with additional funding announced for core areas of our communities including school and hospitals. The Chancellor also confirmed that the UK Infrastructure Bank (UKIB) would be transformed into the UK’s National Wealth Fund with a broader remit to crowd in private sector investment into specific sectors and technologies critical to UK green energy and growth ambitions, and investment commitments from large multi-nationals including in energy, data and digital and healthcare. Alongside this is the pledge to protect government investments in research and development "to unlock these growth industries of the future" with more than £20bn of funding, including at least £6.1bn to protect core research funding for areas like engineering, biotechnology and medical sciences. It will now be key to ensure that value is delivered from this spend and it is effectively controlled.
“There appears to be some initial confidence that the Government’s investment gamble may pay off and the benefits from potential future growth will outweigh the inflationary pressures and higher government debt repayments. This was reinforced by the OBR who predict that real GDP growth will rise from 1.1% in 2024 to 1.6% in 2029, with borrowing as a share of GDP falling from 4.5% to 2.5% over the same period.
“Whether this turns out to be correct though, and moves us towards ‘restoring economic stability’, depends on whether businesses can access some of the additional funding freed up from this change to fiscal rules and whether business optimism is boosted. These are both necessary conditions for business investment and growth but our latest research, just ahead of the Budget, found UK business leaders’ growth expectations to be at a three-year low. And with some tax rises announced today, including changes to employers’ National Insurance contributions, businesses are going to have to find a way to manage the impact of these higher costs. But only through this growth will the government be able to pay back the debt, increase spending on public services and raise living standards. Given the OBR's positive growth forecasts off the back of the Budget, businesses and consumers alike may have at least some reason to feel positive about the future.”
