On the Defence Investment Plan top-ups: the political turmoil surrounding top-ups averaging <£4bn/year feels like a small taste of what's in store over the next decade if we want to hit the 3.5% NATO commitment - which would require (much!) more defence money

Could the government borrow more to fund investment in infrastructure? There's a case for borrowing for productive investment, but there isn't one simple trick to substantially increase borrowing within the current fiscal rules. A short thread:

Really important context from Max below: the funding gap the government might need to fill for the Defence Investment Plan is far, far below the amount that would eventually be needed to reach 3.5% of GDP on defence spending

This is most striking figure from Millburn Review. They estimate that around half of the 18-24 population who are not in education, employment or training (NEET) are not claiming any benefits. This limits how effective any reforms to the benefit system can be in reducing the NEET rate.

It wasn’t the biggest story yesterday, but the NHS in England hit its intermediate target that 65% of patients should be waiting 18 weeks or less for elective care by Mar26. That’s after big recent improvements from 61.5% in Jan to 65.3% in March. So how was this achieved?🧵

Pretty good news on growth in the first quarter of the year today, but worth not over-interpreting. In each of the last four years, we've seen higher growth in Q1 than later in the year - you'd want to see good news later in the year to think this is a sign of a genuine improvement.

Lot of discussion of possible tweaks to the fiscal rules. Worth noting a 10 year rule would make it even easier for a Chancellor to meet the rule just by promising cuts well into future parliaments. And that makes it very hard for the rule to constrain borrowing in the short term.

The House of Lords Economic Affairs committee has just published a report on the fiscal framework. One fairly major suggestion: that the government set out an additional fiscal target, in which debt as a share of GDP is lower in the third year of the forecast than in the first year in normal times

Key context to talk about the cost of any potential energy support package: an energy price shock is already bad news in itself for the public finances. Higher inflation and interest rates would push up debt interest spending, welfare spending, and put pressure on public services.

🚨 OUT NOW 🚨 What did we learn from the Spring Statement? 📈 Labour MP @lukemurphy.bsky.social, Resolution Foundation's @jamessmithrf.bsky.social and the IFS's @nickridpath.bsky.social join @alaintolhurst.bsky.social to discuss the state of the economy 🎧 Listen now: pod.fo/e/39ea85

(Sidenote: this is an average - worth noting how weird the profile looks. Growth much slower in 2029-30, perhaps coincidentally the year the fiscal rules currently bind, before speeding up again thereafter...)

There's lots of uncertainty about unemployment rise - OBR has consistently forecast it to come down quickly, but Bank of England suggest higher unemployment could be sustained for a few years. This is v important for the public finances - sustained higher unemployment could hit borrowing hard.

This is a really key point from Ben. The recent debate has focused so much on how the govt can make the numbers add up to get a forecast current budget surplus. But a forecast budget surplus is not the same as actually running a budget surplus - delivering this will be the real challenge.

The Spring Forecast had a higher revenue forecast, driven mainly by higher equity prices (up 8% between forecasts) adding £9bn extra receipts in 2030/31. This is good news - but equities move regularly: given global volatility, there’s a risk higher forecast could be temporary.

The OBR has revised its annual net migration forecast down by 50-100k, with a small negative impact on forecast tax revenues. If new ONS data for this year shows lower immigration, the OBR could further reduce their net migration assumption, with larger effects on tax revenues.

The OBR’s current budget forecast has barely changed, with borrowing still set to fall over the next few years. Past governments have often set out plans for a current budget surplus, but it’s very rare that they’ve achieved it. That will be the key challenge going forward.

We're expecting a quiet Spring Forecast, without major policy changes or forecast revisions. But there are still things to keep an eye on. One important one is the migration forecast, where recent data highlights potential risks to the forecast in future. A quick thread:

Today’s public finance figures show borrowing is falling, and falling even faster than forecast back in November. This is important: the Chancellor’s plan for meeting her fiscal rules is predicated on borrowing falling significantly this year and next.

Here it is, my magnum opus: an analysis of what’s wrong with the UK’s approach to fiscal policy (under this and previous governments), and a proposal for what an alternative to pass-fail fiscal rules could look like. I’ll follow up with a longer thread later.

There is an increasing sense that the UK's approach towards fiscal policymaking, and in particular the excessive focus on "headroom", isn't delivering good outcomes. Come along on 19 February to hear me make the case for how we could do things differently, and to hear from our terrific panel.

New ONS public finance figures for December show borrowing from April to December was below 2024, in line with forecasts. This is good news, but under the hood there's little sign of a pickup in revenues from inflation - an important thing to watch out for going forward. (1/4)

New ONS public finance data today shows central government revenues are still lagging significantly below March expectations. Given inflation has been higher than forecast, this is surprising - even VAT receipts, which one might expect to rise with inflation, are below forecast

Key thing about the OBR's downgrade then upgrade to revenues: much of it is from inflation and wage growth this year boosting tax take. While inflation and wage growth are up, we're yet to see any increase in tax revenue in recent public finance data. The government will hope it materialises soon.

Underrated part of yesterday's Budget was what's happening to public service spending in 2028-29. Spending Review settlements reopened just 5 months after the SR to account for loosely-specified 'efficiency savings' of £1.4bn in 28-29 (rising to 4bn in 29-30)

Some early takeaways on the public finances from us @theifs.bsky.social. Really interesting thing to me is that the much-anticipated productivity downgrade didn't end up creating that big an increase in forecast borrowing. This means the policies we've seen today have grown headroom substantially.

One reading of this remark is that the fiscal rule requiring debt to be falling as a share of GDP in 2029/30 is now the one that binds (as cuts to capital spending wouldn't help to meet her borrowing rule). That's entirely possible - and was what we predicted in the IFS Green Budget, as it happens.

If there's one key message for the Chancellor from our analysis published today, it's this: Doing a bigger package to increase ‘headroom’ wouldn’t be costless – but nor is limping from one forecast to the next under constant speculation that policy will be tightened again.

With a fiscal “groundhog day” of discussions about how the Chancellor could keep meeting her fiscal rules for the second time this year, we were wondering: what are the chances we could be doing all this again in Spring? The answer: pretty high. Particularly nerdy thread:

At the end of parliament, health funding will be more than 50% higher than in 2010. Spending on justice, in contrast, will be lower in 2028–29 than two decades earlier despite recent increases. Spending on overseas aid and culture, media & sport will also be lower than in 2010.

Average annual real growth in total departmental spending over this parliament is set to be 2.3%. This is below the previous parliament’s average of 3.6%, but higher than the last government had outlined. @beeboileau.bsky.social on the big picture choices in the Spending Review:

Our new Sure Start overview report out today includes a cost-benefit analysis. These estimates are uncertain (many of the likely benefits haven’t happened yet!) but suggest Sure Start may go 90% of the way to ‘paying for itself’, with additional long-run benefits for children as they grow up

We've built a new IFS tool which can be used to explore what the government spends money on, and where in the UK benefits from that spending. Here it is: ifs.org.uk/calculators/.... Short thread on what you can do with the tool:

OBR productivity growth forecasts have historically been over-optimistic. They remain above the productivity growth rates seen since 2008 – a downgrade to the OBR's forecast could cause a real fiscal headache for the Chancellor.

NEW: It has been widely reported that the government is looking to make significant savings from the working-age disability and incapacity benefits budget. How might they do this and what kind of scale of changes would be required? [THREAD]

New evidence out on the EMA today. We find that while it did keep more students in full-time education, this didn't pass through to better quals or earnings later in life - in fact, reduced links to the labour market may have even reduced earnings. Have a read of the thread below and the report 👇