Day two after a budget is always an important moment.
This is when the nerds and boffins of Britain’s fiscal thinktanks assemble to deliver their snap verdict on the chancellor’s decisions.
The moment is more important than ever when, as was certainly the case this time, the budget is a big one.
So what did the Institute for Fiscal Studies (IFS) and the Resolution Foundation make of this year’s budget?
Well, as you’d probably expect, they both fell short of distilling it into a single soundbite, but in broad terms, they both sounded somewhat positive.
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Yes, there were plenty of big provisos. The head of the IFS, Helen Miller, said Labour have broken their manifesto pledge not to raise National Insurance.
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The Resolution Foundation argued that if only the chancellor had raised the basic rate of income tax instead of freezing personal allowances, it would have made the tax rise considerably fairer and more progressive.
And that’s before one gets into the criticism of some of the other bits and pieces from the red book – the structure of the EV tax, for instance (why doesn’t it try to penalise congestion?), or of the mansion tax (why not just overhaul council tax altogether?).
But for the most part, these closely-followed institutions seemed pretty supportive of this year’s budget – more so, certainly, than they were last year.
Primarily, that’s because while the last budget left only a very thin bit of headroom against Rachel Reeves’s fiscal rules, this one was far more cautious, doubling that fiscal insurance policy to just over £21bn.
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Yet that headroom is dependent on a couple of important factors. First, that the government will hold to its promises to keep spending growth constrained towards the end of the decade. Second, that it will be able to raise all the tax revenues it’s promising in that year.
That, in turn, gets to a deeper issue with the budget. Most of the tough stuff has been put off to the final year of the forecast – namely 2029.
That year, the government will face a squeeze at the very same moment that Britons are all asked to pay more in taxes.
And, critically, that’s the very year Labour is due to face a general election. Does it really plan to fight an election off the back of a contracting economy?
Consider, too, that for all the government’s promises to get living standards growing this parliament, they are currently only forecast to rise at the slowest rate since the 1950s – save for the pandemic and energy price shock period. The economic backdrop, in other words, is hardly rosy.
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Still, for the time being, the chancellor has managed to put together a budget that has bolstered her position both in her party and in her job.
Markets remain relatively sanguine – much more so than after Rachel Reeves’s first budget last year – with bond yields lower today than before the event (albeit a little higher than yesterday).
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However, this was a complex budget. And, as with all bits of complex engineering, there remains a distinct possibility of large chunks of the budget failing to work.
But since so much of it isn’t due to kick in for a few years, it may take quite a while before we find out which bits work and which, if any, don’t.
