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the dust is starting to settle on the
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Chancellor's first budget but economists
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will be debating its likely impact for
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months to come if not years so how is it
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likely to impact the UK economy as a
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result of the government's policies the
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size of a state will rise to 44% of GDP
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by the end of the decade 5 percentage
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points bigger than it was pre pandemic
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the tax take will rise to over 38% of
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GDP its highest ever level yet despite
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this big increase the obr's medium-term
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growth forecasts barely moved growth
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will be a little higher than previously
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expected in the short term and a little
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lower than expected thereafter the
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government announced tax Rises worth
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just over 40 billion which will help
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fund an increase in public spending
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worth just over 50 billion and despite
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the government's rhetoric this will
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largely be funded by households because
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it's quite difficult to raise tens of
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billions without somewhere down the line
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raising taxes on working people on the
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obr's estimates real household
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disposable income will be 1.25% lower by
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the start of 2029 than it was projected
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to be in its March round of forecasts
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although it's still higher overall the
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OB suggests around 85% of its difference
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can be explained by policies announced
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in this budget the second component of
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the chancellor spending plans was a big
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increase in public investment public
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investment will be around1 billion pound
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Higher by the end of this Parliament
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staving off the cuts which had been
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penell in by the previous government the
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OB gives two perspectives on the
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increase in public investment with
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differing time Horizons looking 5 years
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ahead and the impact appears to be
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negative with an increase in public
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investment crowding out businesses
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extend the time Horizon however and the
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impact swings positive again despite the
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impact of crowding out as an improved
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Capital stock makes itself felt so the
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big question will Rachel Reaves his
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plans work and what's going to happen in
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the long term there's a compelling
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argument that the quality of the UK's
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Public Services is an impediment to
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growth the most obvious example is the
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post-pandemic increase in people out of
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work due to long-term sickness
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reintegrating half to three qus of those
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people could boost output by 3%
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according to BCG which is a huge
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increase but it will cost money a strong
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growth case can also be made for public
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investment increasing investment should
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both improve Public Service delivery and
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boost the economy's physical
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infrastructure according to the
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resolution Foundation the UK has fewer
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hospital beds per person than all bar
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one oecd economy Brits also spend more
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time commuting than all bar two Rich
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economies largely due to underinvestment
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in travel infrastructure increasing
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public investment might crowd out
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private investment in the short term but
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if the government invests in the right
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projects it will improve the economy's
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productive capacity so where does that
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leave us the government's hope is that
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by taking more from the private sector
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now it can rebuild the fabric of the
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economy this is clearly a risk asking
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more from businesses and households may
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also weigh on growth but doing nothing
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is also a risk the UK's growth
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trajectory is poor and its public
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services are in Dire Straits so time
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will tell if Labor's approach is right
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here at cityam we'd like to know what
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you think of the budget let us know in
