The second most significant date in Chancellor Jeremy Hunt’s diary is fast incoming on 22nd November. Whilst everyone eagerly anticipates the Autumn Statement update on the state of the country’s finances, it is probably the tax and spending changes that will interest more people.
Importantly, it is set to start at about 12:30pm and so the impact on the market, if any, will happen after the PWLB’s lunchtime setting.
Notably, little information has been released ahead of the Statement, which is suggestive in itself. Usually, if there is going to be anything groundbreaking, there is often forward guidance or ground testing leaks (with the obvious exception of the “Mini” Budget from recent sagas).
Below outlines some of the potential changes, however, there have not been any leaks regarding local authorities specifically, therefore all of the below are likely to have varying secondary impact on Councils:
The Office for Budget Responsibility (OBR) will issue their own assessment of the assorted changes alongside the announcement. This has become an essential part of the budget process, despite only being introduced by the Cameron/Osborne administration back in 2010. The OBR’s assessment will likely tame market reactions and indicate whether the government is adhering to its own fiscal rules.
Avid budget watchers will remember Hunt’s fiscal rule on debt reduction, which mandates that government debt should be forecast to fall as a share of national income between the 4th and 5th years of the forecast period. For the latest forecast, this means the debt-to-GDP ratio must be lower at the end of the 2027/28 financial year than at the end of 2026/27. In the Spring Budget, the government had a marginal headroom of 0.2% of GDP (£6.5 billion) against this target.
Another fiscal rule concerns borrowing limits, stipulating that public sector borrowing should not exceed 3% of GDP in five years' time. This means that the deficit should be forecast to be less than 3% of GDP in the fifth year of the forecast period. As of the latest forecast in March 2023, the government had 1.3% of GDP (£39.2bn) of headroom against this target.
Significant divergence from these rules could add some volatility to the gilt market. However, resolute adherence to these self-imposed rules could help stabilize markets and potentially continue the recent decline in gilt yields.
Please join our Trending Treasury webcast next week for a full update on the Autumn Statement from Nick Keeling & Stuart Jones.