Sluggish growth demonstrates need for more fundamental reform
26 March 2025
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26 March 2025
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Responding to the Spring Statement, Tom Clougherty, Executive Director of the Institute of Economic Affairs, said:
“The Chancellor is right to cut spending rather than raise taxes again, and the cuts she has made are welcome. There is, nevertheless, a sense of unreality about all this. Policy is being determined by an arbitrary, moving target – a fiscal rule – rather than with any long term, principled strategy in mind.
“When you look at the sluggish growth forecasts, and the enormous liabilities the state will encounter as the population ages, Britain’s cycle of fiscal events feels a lot like rearranging the deck chairs on the Titanic.
“Turning increased defence spending into an exercise in ‘modern industrial strategy’ suggests that the government still has too state-centric a view of economic growth – one that is almost certain to disappoint in the long-run.
“Ultimately, we are going to need much more fundamental reform – going further and faster on the deregulatory, supply-side measures the government has begun to talk about; lifting the self-defeating burdens that have been imposed on business; and taking a long, hard look at what the state does and how it is funded.”
On housing regulation, Kristian Niemietz, Editorial Director at the Institute of Economic Affairs, said:
“While the Spring Statement was overshadowed by the bad news of downgraded growth forecasts, there are also some silver linings hidden in the OBR report which the Chancellor alluded to. In particular, the government’s planning reforms are projected to lead to a 0.5% increase in the housing stock by the end of this decade, which, in turn, is projected to lead to a 0.2% increase in GDP. 0.2% may not sound like much, but it is rather a lot if we bear in mind that this represents a pure gain, which comes at no cost and with no downsides. It is the equivalent of finding a pile of pound notes worth 0.2% of your annual salary lying around on the pavement: you would not feel like you had just won the lottery, but you would certainly pick them up.
“0.2% is just the direct, medium-term effect. The OBR also point out that if increased housebuilding leads to more people moving to high-productivity areas, the long-term growth effect would be higher still.
This should raise the following question: if it is so easy to add 0.2% to GDP just with a fairly modest regulatory reform, why not repeat that exercise on a much bigger scale?”
On the welfare measures, Professor Len Shackleton, Editorial and Research Fellow at the Institute of Economic Affairs, said:
“The much-publicised benefit savings of £4.8 billion will be offset by extra spending on implementing this – more staff, presumably, to screen claimants. The problem is that the new spending is real while the savings are projections which may not be achieved, meaning the net savings of £3.4 billion may be fanciful.”
Responding to the Spring Statement, Julian Jessop, Economics Fellow at the Institute of Economic Affairs, said:
“This is not a ‘return to austerity’. The £14bn of savings on current spending is just a drop in the ocean: public sector current spending is still forecast to climb to £1,351bn in 2029-30, £219bn more than in 2024-25.
“Moreover, most of the announced savings will come from efficiency gains in public services where productivity has lagged well behind, and from cutting some benefits paid to people who may not actually need them. Again, this is hardly ‘austerity’.
“Nonetheless, the late scramble to find additional savings on the welfare bill – simply to restore exactly £9.9bn of fiscal headroom – does raise the risk that some vulnerable people will lose out. Making such big decisions on the basis of spuriously precise forecasts is not a sensible approach.
“Indeed, the Spring Statement illustrates both the strengths and weaknesses of the UK’s current fiscal framework and the role of the OBR. On the plus side, the independent watchdog is reported to have rejected dubious costings produced by the government as recently as last week. However, this has prompted a last-minute rush to hit fiscal targets based on five-year forecasts which will almost inevitably be proved wrong.
“The room for error is also still incredibly limited. As the OBR itself has pointed out, the fiscal headroom is the third lowest any Chancellor has had against their rules, and could easily be wiped out by new shocks, including higher interest rates and a global trade war. There is no guarantee either that public sector productivity can catch up without fundamental reforms that will be resisted at every stage.
“There is therefore a high chance that the Chancellor will have to come back again with additional tax increases and more painful spending cuts as soon as the Autumn Budget.”
“The Chancellor is right to cut spending rather than raise taxes again, and the cuts she has made are welcome. There is, nevertheless, a sense of unreality about all this. Policy is being determined by an arbitrary, moving target – a fiscal rule – rather than with any long term, principled strategy in mind.
“When you look at the sluggish growth forecasts, and the enormous liabilities the state will encounter as the population ages, Britain’s cycle of fiscal events feels a lot like rearranging the deck chairs on the Titanic.
“Turning increased defence spending into an exercise in ‘modern industrial strategy’ suggests that the government still has too state-centric a view of economic growth – one that is almost certain to disappoint in the long-run.
“Ultimately, we are going to need much more fundamental reform – going further and faster on the deregulatory, supply-side measures the government has begun to talk about; lifting the self-defeating burdens that have been imposed on business; and taking a long, hard look at what the state does and how it is funded.”
On housing regulation, Kristian Niemietz, Editorial Director at the Institute of Economic Affairs, said:
“While the Spring Statement was overshadowed by the bad news of downgraded growth forecasts, there are also some silver linings hidden in the OBR report which the Chancellor alluded to. In particular, the government’s planning reforms are projected to lead to a 0.5% increase in the housing stock by the end of this decade, which, in turn, is projected to lead to a 0.2% increase in GDP. 0.2% may not sound like much, but it is rather a lot if we bear in mind that this represents a pure gain, which comes at no cost and with no downsides. It is the equivalent of finding a pile of pound notes worth 0.2% of your annual salary lying around on the pavement: you would not feel like you had just won the lottery, but you would certainly pick them up.
“0.2% is just the direct, medium-term effect. The OBR also point out that if increased housebuilding leads to more people moving to high-productivity areas, the long-term growth effect would be higher still.
This should raise the following question: if it is so easy to add 0.2% to GDP just with a fairly modest regulatory reform, why not repeat that exercise on a much bigger scale?”
On the welfare measures, Professor Len Shackleton, Editorial and Research Fellow at the Institute of Economic Affairs, said:
“The much-publicised benefit savings of £4.8 billion will be offset by extra spending on implementing this – more staff, presumably, to screen claimants. The problem is that the new spending is real while the savings are projections which may not be achieved, meaning the net savings of £3.4 billion may be fanciful.”
Responding to the Spring Statement, Julian Jessop, Economics Fellow at the Institute of Economic Affairs, said:
“This is not a ‘return to austerity’. The £14bn of savings on current spending is just a drop in the ocean: public sector current spending is still forecast to climb to £1,351bn in 2029-30, £219bn more than in 2024-25.
“Moreover, most of the announced savings will come from efficiency gains in public services where productivity has lagged well behind, and from cutting some benefits paid to people who may not actually need them. Again, this is hardly ‘austerity’.
“Nonetheless, the late scramble to find additional savings on the welfare bill – simply to restore exactly £9.9bn of fiscal headroom – does raise the risk that some vulnerable people will lose out. Making such big decisions on the basis of spuriously precise forecasts is not a sensible approach.
“Indeed, the Spring Statement illustrates both the strengths and weaknesses of the UK’s current fiscal framework and the role of the OBR. On the plus side, the independent watchdog is reported to have rejected dubious costings produced by the government as recently as last week. However, this has prompted a last-minute rush to hit fiscal targets based on five-year forecasts which will almost inevitably be proved wrong.
“The room for error is also still incredibly limited. As the OBR itself has pointed out, the fiscal headroom is the third lowest any Chancellor has had against their rules, and could easily be wiped out by new shocks, including higher interest rates and a global trade war. There is no guarantee either that public sector productivity can catch up without fundamental reforms that will be resisted at every stage.
“There is therefore a high chance that the Chancellor will have to come back again with additional tax increases and more painful spending cuts as soon as the Autumn Budget.”
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