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Evaluating the Spring Budget and the UK’s Fiscal Rules

Ethan Ilzetzki and Suryaansh Jain

Thursday, 13 June 2024



The March 2024 CfM survey asked the members of its UK panel to assess whether the newly announced cut in national insurance contributions would substantially stimulate GDP within a year. The panel was also asked to predict if the next UK government would have to raise taxes to make public debt sustainable. The survey concluded by asking the panel to assess the effectiveness of the UK’s fiscal rules in limiting the accumulation of public debt, relative to a no-rules scenario. Most panellists believe the national insurance contribution cut will not stimulate the UK economy and the subsequent government would need to raise taxes to ensure the sustainability of public debt. The majority of the panel believes the current fiscal rules are either ineffective or counterproductive in limiting public debt build-up, with a small fraction suggesting the rules are somewhat effective in their task.


The March 2024 CfM-CEPR survey asked the members of its panel to forecast the short-run effect of the newly-announced national insurance contribution cut on the UK’s GDP, predict whether the next government would have to raise taxes to make public debt sustainable, and to evaluate the current set of fiscal rules.


The 2024 Spring Budget


On 6th March, Jeremy Hunt presented the Spring Budget intending to deliver long-term growth through “more investment, more jobs, better public services and lower taxes.”   The Chancellor noted that the economy “is beginning to turn a corner” and as such, the government was able to go ahead with its long-term plan of cutting taxes further for working people, reforming how it delivers public services, and building a stronger economy and a brighter future for the UK (HM Treasury, 2024).


The main takeaways from the Spring Budget were the tax and National Insurance Contribution (NIC) cuts announced. This included a 2p reduction to the main rates of employee and self-employed NICs from 6 April 2024. This is a tax cut worth over £10 billion per year, and the OBR expect that as a result total hours worked will increase by the equivalent of almost 100,000 full-time workers by 2028-29 (HM Treasury, 2024). In addition, the government also reformed the High-Income Child Benefit Charge (HICBC) scheme, which supports working families having children. The government raised the HICBC threshold to increase the number of eligible families and plans on revising the eligibility criteria to make it based on household income, as opposed to individual income (HM Treasury, 2024). Furthermore, the government chose to extend the temporary 5p cut to fuel duty for another 12 months and froze alcohol duty rates for the next year. However, despite these cuts, the budget will still leave tax as a share of national income at 37.1%, the highest since 1948.


On the revenue-raising side, the key decision was to reform the existing tax regime for non-domiciled individuals to a residence-based system, whereby UK residents start paying UK tax on foreign income and gains following four years of residency (Weston, 2024). The government also extended the energy profits levy (introduced to tax the exceptional profits of oil and gas companies arising from unexpectedly high oil and gas prices) till 2029 (Weston, 2024). Other measures to raise revenue included an increase in air passenger duty, maintaining the increase in tobacco duty and a new duty imposed on vaping products (Weston, 2024).


The government also pledged to grow its planned departmental resource spending at 1% a year on average in real terms and for public sector capital spending to be frozen in cash terms. In addition, the Chancellor promised to provide the NHS with £2.6bn over a three-year period (from 2025/26) to make productivity-enhancing investments (Weston, 2024).


Reactions to the Budget have been mixed. The Resolution Foundation stated that Britain remains a country “where taxes are heading up not down, and one where incomes are stagnating.” The Institute for Government also pointed out that even as wages increase in real terms this year, at the time of the upcoming elections on average, households will have real incomes lower than when the parliament began in 2019 (Tetlow et al., 2024). 


The IFS welcomed the decision to cut NICs, claiming that it would benefit millions of workers (Adam et al., 2024). However, they note that NIC cuts just serve to give back a portion of the money that is being taken away through other income tax and NIC changes – in particular, multi-year freezes to tax thresholds at a time of high inflation.  As per the IFS, for every £1 given back to workers (including the self-employed) by the NICs cuts, £1.30 will have been taken away due to threshold changes between 2021 and 2024, with this rising to £1.90 in 2027. NIESR pointed out that the NIC cuts are regressive, with households in the lowest income decile set to gain 0.2 per cent of their annual disposable income whereas the top five decile gain 1.4 per cent of their annual disposable income (Carbo et al., 2024).


A lot of criticism noted that the Budget did nothing to address the UK’s growth and productivity problems. NIESR questioned the government’s lack of commitment towards public investment, which is forecasted to be falling as a percentage of GDP over each of the next five years (Carbo et al., 2024). Serin, Valero and Zenghelis (2024) also characterised the Budget as “another missed opportunity to make progress on boosting living standards on a longer-term basis and increase investment in a sustainable and resilient future for the UK.”


(Dis)functional Fiscal Rules?


By far, the biggest critique of the Budget has been the lack of fiscal caution exercised by the government. As per the UK’s fiscal framework, the government must adhere to these self-imposed ‘fiscal rules’:

  1. Debt should be on course to fall as a share of national income in five years’ time

  2. Public sector borrowing should not exceed 3% of GDP in five years' time 

  3. Some types of welfare spending must remain below a pre-specified cap 


These rules determine the scope available for tax cuts or higher spending (the ‘headroom’) for the government. With the headroom already at a slim margin of £13 billion coming into the Budget, the tax cuts announced by the government further reduced the headroom to a ‘historically modest margin’ of £8.9 billion – compared to previous chancellors who kept about £29.7bn in reserve on average (The Office for Budget Responsibility, 2024).


Several Opposition members and think tanks have criticised the government for barely meeting its fiscal rules with a set of post-election spending plans that “still imply substantial cuts to funding of many public services which are clearly struggling with their current level of funding” (Weston, 2024). Under the Treasury’s assumptions, unprotected government departments will have a 13% real-terms cut in their budgets from 2025-26 to 2028-29. This collectively amounts to a £19bn cut, comparable to the round of austerity heralded by David Cameron and George Osborne in 2010 (Courea, Quinn and Siddique, 2024). The Resolution Foundation characterises the implausibility of these assumptions as “fiscal fiction” The Institute for Government doubled down on this opinion, claiming that the chancellor is “not even likely to meet his fiscal rule” and pointed out that the energy windfall tax is set to expire the year after the forecast period, which would reduce any headroom available to the chancellor in the following years (Tetlow et al., 2024).


International organisations have issued similar warnings to the UK government. In January this year, the IMF had warned Hunt against cutting taxes and urged the need to boost key areas of public spending instead. In response to the Budget, the IMF has warned that stabilising the UK’s debt is likely to require additional tax rises. Citigroup also warned that the productivity growth estimates used by the OBR to validate the government’s fulfilment of the fiscal rules were ‘too optimistic’, and that they see the UK as “fiscally offside by around £50-60 billion.”


A number of think tanks and experts have stressed the need to reform the UK’s fiscal framework to prevent the gaming of fiscal rules: “claiming to be adhering to fiscal discipline while frequently announcing short-term giveaways matched by longer-term tax rises or spending cuts that often do not materialise” (Tetlow, Bartrum and Pope, 2024). Another issue is that the organisation responsible for independently assessing the government’s fiscal policies – the OBR – is required to assess the government’s performance based on stated government policy, regardless of how implausible or vague those statements of policy are (Bartrum, 2024). As such, the OBR’s mandate, which simply checks if the government complies with the letter of its self-imposed rules, is insufficient to prevent fiscal mismanagement. NIESR also points out that the 5-year target-based fiscal framework leads to the system falling “victim to short-term thinking by overlooking the returns which can accrue from public investment beyond a five-year horizon (Caswell, 2024).”


The Institute for Government proposes to redesign fiscal rules so that they are “consistent with government’s objectives, treating investment differently to current spending, binding in the third year of the forecast (rather than the fifth as the current rules do), and providing flexibility to respond to shocks. (Tetlow, Bartrum and Pope, 2024).” Another proposed solution is to adapt the UK’s fiscal framework to incorporate public sector net worth as a target (Caswell, 2024). The inclusion of public sector net worth in the UK’s fiscal framework would provide a broader measure of public debt sustainability which is inclusive of what the government owns and what it owes. Experts have also called for a reform of the OBR’s charter so that it can move away from the unhelpful ‘pass/fail’ nature of its current assessment of the government’s fiscal performance and guarantee that the watchdog could independently publish a forecast of the impact of any fiscal event containing tax and spending measures above a certain threshold (Bartrum, 2024; Parker and Giles, 2024).


This month’s survey asks about the implications of the Spring budget. The first question regards the impact of the current budget; the second asks about the next government, and the third reflects on the UK fiscal framework more broadly.


Question 1: Will the cut to national insurance contributions have a substantial stimulative effect on GDP within a year?

Unweighted Q1 03-24.png

Twenty-six panel members responded to this question. The majority of the panel (70%) thinks that national insurance contribution (NIC) cuts will not have a substantial stimulative effect on GDP within a year. The remainder of the panel agrees that these cuts will substantially stimulate GDP within a year, with 17% believing this will occur primarily through increasing disposable income and 13% suggesting this will occur primarily through increasing labour supply.


Most panellists believe that NIC cuts will only have a minor effect on workers’ disposable income and therefore will have little impact on GDP. Lukasz Rachel (University College London) suggests that NIC cuts will only boost demand by 0.4%, and since it is “regressive”, the marginal propensity to consume (MPC) from this income boost may not be “very high.” As such, he does not expect the impact of the cuts to be substantial, especially as they are “working against some powerful structural trade-off and pessimism, and strong increases in effective tax rates due to fixed thresholds.” Chryssi Giannistsarou (University of Cambridge) also suggests that the cuts are unlikely to affect the economy as the “increases in disposable income for the lower parts of the income distribution are particularly small, especially in light of recent inflation rates and drops in households' real incomes.” Jagjit Chadha (NIESR) points out that there is “a structural mismatch in the labour market with so many vacancies and so many people deciding to remain outside the labour force”. Hence, while the cuts may have a “longer-run impact instead of an immediate one,” he instead advocates for policies that “develop incentives for firms to train the potential labour force” and “encourage people to re-join the workforce.”


Several panel members believe that the cuts could meaningfully impact GDP in the short run through different channels. Ricardo Reis (London School of Economics) suggests that the policy is a “textbook-cut [increase] in the returns to working longer hours” and characterises the OBR’s forecast of total hours worked increasing by the equivalent of 100,00 workers due to these cuts as “reasonable, [but] with very wide confidence bands.” Patrick Minford (Cardiff Business School) echoes this sentiment, suggesting that there will be “some modest (not 'substantial') stimulus via [increasing] both labour supply and disposable income.” He further points out that the government “missed” the chance to “reduce marginal income tax rates higher up the income scale where there are large effects on entrepreneurial innovation”, which could have had a meaningful impact on GDP in the short run.


Question 2: Will the next government have to raise taxes to make public debt sustainable?

Unweighted Q2 24-03.png

Twenty-six panel members responded to this question. The majority of the panel (66%) thinks that the next government will have the raise taxes to make public debt sustainable. A smaller fraction of the panel (21%) thinks that the incoming government will not need to raise taxes to ensure the sustainability of public debt.


Most panellists believe that tax increases are inevitable in the short run to increase government revenues. Jagjit Chadha summarises this viewpoint: “The pressures on government expenditure – health, social, defence and infrastructure – will require an increase in revenues to meet total managed expenditure.” Charles Bean (London School of Economics) highlights that the OBR's latest economic and fiscal projections imply “implausibly large cuts in the spending of unprotected departments”, pointing out that similar past experiences suggest that “the spending envelope will therefore be raised substantially at the next Spending Review, necessitating a corresponding increase in the tax burden (or a reduction in transfers) to keep the public debt-GDP ratio on a sustainable trajectory.” Stephen Millard (NIESR) further states that public investment needs to be increased for a variety of reasons: “to raise the growth rate”, “help the UK achieve its net zero goals”, and “bring public services back up to scratch after years of cutbacks”, which would need to be financed by higher taxes “or else the debt will grow substantially as a proportion of GDP.”


Many panellists offer an alternate opinion, advising that tax hikes may not be the only way to rein public debt under control. Roger Farmer (University of Warwick) states that reducing spending would be a “better alternative” to make public debt sustainable. Pointing out that a “substantial part of the UK working age population is currently out of the labour force and receiving disability payments”, he suggests a “reform of the benefits system would be a better way of controlling spiralling deficits than increasing taxes.” Michael Wickens (Cardiff Business School) further highlights that “most of the tax revenues come from a tiny proportion of the population”, resulting in the majority always having “an incentive to vote for more government expenditures”, even when this leads to unsustainable public debt.


 Question 3: How effective are the UK’s fiscal rules in limiting the accumulation of public debt, relative to a scenario without fiscal rules?


Twenty-six panel members responded to this question. The majority of the panel (63%) thinks that the UK’s fiscal rules are either ineffective or counterproductive in limiting the accumulation of public debt compared to a scenario without fiscal rules. A substation fraction (37%) think the current fiscal rules are somewhat effective in reducing the build-up of public debt.


Most panellists believe the current set of fiscal rules must be revised to prevent public debt from reaching unsustainable levels over time. David Cobham (Heriot Watt University) stresses the importance of revising the current five-year rule to prevent the government from gaming the current set of rules and to “exclude genuine [long-term] public sector investment” from being curtailed. Michael Wickens expresses similar opinions and proposes an alternate set of rules that “tax-finance permanent expenditures and debt-finance investment and temporary expenditures” as a better option than the current five-year norm.


Several panellists believe that the current rules may even be counterproductive to the economy in various ways. Patrick Minford states that the current fiscal rules, “by preventing lower marginal tax rates on entrepreneurial activity”, are “driving down growth, which, in turn, worsens long run fiscal prospects and raises the debt-to-GDP ratio trend.” Chryssi Giannistsarou highlights that even when the rules are met, they are associated with “long-term macroeconomic volatility and aggregate instability.” She further points out that the rules can also be “counterproductive in extreme situations when policy makers should be offering fiscal space (such as the pandemic) rather than trying to accommodate such fiscal rules.”


Many panel members argue that the rules, while not perfect, do fulfil their objective of limiting the accumulation of public debt relative to a no-rules scenario. Ricardo Reis emphasises that in the absence of fiscal rules, “political pressure would have made the [tax] cuts this year be larger.” Lukasz Rachel acknowledges that while the current system “fails to encourage responsible long-term decision-making”, he prefers “the idea of debating alternative frameworks rather than going to no rules at all.”




Reference list

Adam, S., Emmerson, C., Johnson, P., Joyce, R., Mirrer, H., Stockton, I., Wernham, T. and Zaranko, B. (2024). Spring Budget 2024: initial IFS response. [online] Institute for Fiscal Studies. Available at: [Accessed 21 Mar. 2024].


Aref-Adib, C., Bell, T., Brewer, M., Broome, M., Clegg, A., Cominetti, N., Corlett, A., Fry, E., Marshall, J., Mccurdy, C., Murphy, L., Odamtten, F., Pacitti, C., Pittaway, S., Slaughter, H., Smith, J., Thwaites, G. and Try, L. (2024). Back for more? Putting the 2024 Spring Budget in context BRIEFING. [online] Available at: [Accessed 21 Mar. 2024].


Carbo, P.B., Michail, M.G., Low, H., Mosley, M., Smith, R., Bhattacharjee, A., Pabst, A., Millard, S. and Caswell, B. (2024). Low-Key Budget Unlikely to Unlock Productivity Growth: NIESR’s Response to the Spring Budget 2024. [online] NIESR. Available at: [Accessed 21 Mar. 2024].


HM Treasury (2024). Spring Budget 2024 (HTML). [online] GOV.UK. Available at:


Caswell, B. (2024). Public Debt Sustainability and Fiscal Rules. [online] NIESR. Available at:

Serin, E., Valero, A. and Zenghelis, D. (2024). The UK’s Spring Budget 2024: more of the same on growth and net zero? [online] Grantham Research Institute on climate change and the environment. Available at:


Tetlow, G., Pope, T., Bartrum, O., Hoddinott, S. and Pattison, J. (2024). Five things we learned from the spring budget 2024. [online] Institute for Government. Available at:


Weston, T. (2024). Spring budget 2024: Key announcements and analysis. [online] House of Lords Library. Available at: [Accessed 21 Mar. 2024].

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