Responding to the Spring Statement by the Chancellor of the Exchequer, Anna Leach, the Chief Economist at the Institute of Directors, said:

“The Chancellor has rightly responded to a fiscal rules ‘miss’ by taking proportionate action to reduce the deficit and re-build fiscal headroom. This was necessary to ensure market confidence and stability. But the balance of spending and tax measures is rather more tax rich than expected, with £5.6 billion more in tax receipts against £4 billion of spending cuts by 2029-30.

“There are some positives for growth – particularly with the OBR giving planning reform a thumbs up. Defence spending is rightly funded through retrenchment elsewhere – at least for the years in which we have detail. With disability claims having risen twice as fast as measured disability since the pandemic, it makes sense to ensure that welfare spend is directed towards those who most need it.

“However, it is notable that the only element of the welfare package which the OBR has incorporated into its employment forecast actually reduces labour supply in future years. And the OBR notes that previous packages of similar ambition have delivered far fewer savings than anticipated. The OBR plan to give a fuller analysis of the overall welfare reforms in October, but will do so alongside their analysis of the employment rights package – which we judge to significantly increase the cost and risk of hiring.

“A fixation with whether or not this is a fiscal event misses the point. It is clear that a small fiscal rules shortfall has diverted huge amounts of government energy from more productive activity. Once again, fiscal retrenchment is heavily backloaded to the final two years of the forecast, with departmental current budgets actually increasing in nominal terms before that once their NICs compensation is added in. And the OBR judge that the probability of meeting the target is only about 50%. It is clear that the updated fiscal rules are not yet delivering the necessary stability for departmental budgets and therefore for government policy.

“The greater emphasis on applying AI and innovative technology in the defence sector and in government is to be welcomed, given the imperative of improving public sector productivity.”