How to understand the Budget – without the spin
Budgets are one of the biggest set-pieces in UK politics. They allow the Chancellor to set the economic and political direction of the government, and the country. But they also provide a chance to put the most positive spin on the state of the economy. So how can you tell whether the Budget speech is giving you the full picture or not?
We asked the Institute for Government’s Jill Rutter and Gemma Tetlow to put together a list of some of the most common tactics used to present Budgets in the best possible light. Jill is a programme director at the IfG and a former Treasury Communications Director, while Gemma is the IfG’s chief economist and a former economics correspondent at the Financial Times—so they know what they’re talking about. If you want to look beyond the spin and understand better what the budget really means, here are some of the key things to look out for…
Is it actually new?
Chancellors like to have a lot of things to announce (although thankfully not quite as much these days as William Gladstone had in his record 4 hour 45 minute-long speech in 1853). But this means that not all of the things being announced will be new. So check whether this is actually a new announcement, or just a “reannouncement”.
What is it compared to?
Budgets usually mean announcing long lists of figures—economic growth figures, or government borrowing figures, for example. But sometimes those figures might be presented as good news when in fact they’re… less good news.
To take a recent example, last November Philip Hammond announced in his Budget speech that “borrowing will fall in every year of the forecast. From £39.5 billion next year to £25.6 billion in 2022/23.” What he didn't say was that just eight months earlier, the forecast had been for borrowing to fall more quickly—from £40.8 billion in 2018/19 to £16.8 billion in 2021/22.
Over how many years?
Chancellors usually like to announce plenty of giveaways or savings. But these annual spending or saving figures can sound bigger than they really are if the totals announced are over a number of years. The more years, the bigger the figure—but it’s still the same percentage of tax or spending.
Sometimes there’s a perfectly good reason for this—if it’s a big project or investment, it makes sense to announce the whole cost. But if it is recurring spending or tax, don’t get distracted by the bigger number; focus on the cost, or the revenue raised, in each year.
Is it really an increase?
The fact that prices generally go up every year means that governments can spend more, but end up getting the same, or less, for their money. So if they announce a set of cash figures for a spending increase, it’s worth asking what that means after taking account of inflation—so-called “real terms”. (The forecast published alongside the budget also tells you what is expected to happen to prices.)
In the same way, spending can also go up—but if there are more people using the service, that may mean per person spending is going down, so it may not feel like an increase.
When will it happen?
Is the good thing that’s been announced scheduled to happen soon, or is it a promise made for many years ahead? Check the small print on when any announced changes will actually happen. Delaying a measure’s introduction isn’t necessarily a bad thing (for example, it may allow more time for consultation), but it’s worth remembering that just because something is announced in the budget doesn’t mean you can expect to see change any time soon. Equally, some measures may look cheap now—but have significantly rising costs in the future.
And sometimes permanent generosity (in the form of spending increases or tax cuts) can be “funded” by changes elsewhere that are only temporary. This allows the Chancellor to announce popular measures (like raising the income tax personal allowance or freezing fuel duties) while appearing to have not increased borrowing.
The independent Office for Budget Responsibility policy costing document, which is published alongside the Budget, sets the timing out in detail.
Will it happen at all?
Another tactic is to announce ambitious figures—but with no clear plan for achieving them.
For one example, in March 2016 George Osborne faced a dilemma. The fiscal forecasts were significantly downgraded by the Office for Budget Responsibility and the government wanted to announce significant tax cuts. But he had set himself the target of eliminating public borrowing by 2019/20. One of the ways he managed to stay on course to achieve that objective was to pencil in £3.5 billion of “efficiency savings” in public service spending… but he provided no detail at the time of where these would come from. In the end, most of these planned cuts were never delivered.
Watch out for promised savings from similar “efficiency” reviews.
How certain are the costs and benefits?
The Treasury can’t be equally certain what the effects all their Budget measures will have. Some effects are pretty easy to predict, but others are much harder. Among the most uncertain are cases where they decide to rely on “crackdowns” or “better enforcement” to yield more money without changing taxes at all. Other difficult-to-predict scenarios are ones that assume a measure will lead to a big change in behaviour (or the opposite, that people won’t change their behaviour despite the system changing).
Luckily, we don’t have to rely on the Government to tell us about the effects—that is also now done by the Office for Budget Responsibility, who also assess how confident we can be about the estimates.
Is that “simplification” really simple?
Governments often like to present changes as “simplifications” to the tax system—making life easier for taxpayers. But people who have benefited from the previous “complication” may see their tax bill going up as a result. It’s very difficult to simplify the tax system without creating losers somewhere, unless taxes more generally are being cut. So is there more to some of the measures than we’re being told?
Was anything left out?
One of the perks of being Chancellor is that you can choose what to announce and what to leave out of your speeches. But there should be details of all changes in the press notices that accompany the Budget—and any tax change should appear in the policy costings document.
Budgets which are well received at the time they’re announced can sometimes unravel shortly afterwards, once people have had time to look at the small print. A few hours after the Budget is delivered, the Office for Budget Responsibility presents their forecast. The following day, the Institute for Fiscal Studies releases their assessment of who gains and who loses from the measures. If you want to properly understand the Budget, it’s a good idea to wait for expert views and detailed analysis, rather than taking everything in the Budget speech at face value.