No. We estimate that the Office for Budget Responsibility (OBR) will give the Chancellor fiscal “headroom” of around £22bn against her fiscal rules. That would be higher than the £9bn leftover after the last Budget in March. And if she tweaked the definition of the debt rule, she may have headroom of around £38bn (although only £23bn of that could be used to fund day-to-day public spending and the other £15bn could be used for public investment). If so, the Chancellor would be able to fund the £16bn per year increase in public spending she has said is necessary by running down the headroom instead of raising taxes. Our Fiscal Headroom Monitor regularly updates our estimates for the headroom.

The Chancellor has said public spending needs to be £16bn higher a year. To pay for that, we think she’ll adopt what you could call a “blame and buffer” tactic. While it is easier to blame events on the previous government, we think she’ll take the opportunity to raise taxes by £16bn a year to pay for higher spending. That would mean she keeps any extra fiscal headroom back as a buffer to use another time. (See here.)

If we’re right in thinking that public spending and taxes will be raised by the same amount, then fiscal policy will be tightened in line with the previous government’s plans and there is no implication for our economic forecasts from the stance of policy. Even so, the Budget may boost GDP in 2025 by around 0.2 percentage points. That’s because an increase in public spending tends to boost GDP by more that the same increase in taxes reduces it. It would also mean the composition of GDP is different, with government consumption growing at a faster rate than otherwise and consumer spending growing at a slower rate. (See here.)

There are two obvious ones. First, raising taxes by more than spending would allow the Chancellor to build up a bigger cash buffer while blaming as much of the bad news as possible on the previous government. This would result in fiscal policy being tightened by more than the previous government’s plans and would mean the Budget doesn’t boost the level of GDP and may reduce it.

Second, changing the fiscal rules to allow public investment to be higher could improve the economy’s long-term growth prospects. It would mean, however, that fiscal policy is tightened by less than the previous government’s plans and that over the next few years economic demand rises relative to supply. That may mean over the next year or two inflation and interest rates are a bit higher than otherwise. (See here.)