Spring Budget 2024: Background briefing

The Chancellor will present his Budget to the House of Commons on 6 March. The Office for Budget Responsibility (OBR) will publish revised forecasts for the economy and public finances on the same day as the Budget statement. The OBR is the independent public finances watchdog, which produces the official forecasts for the economy and public finances used by the Chancellor.

Public finances

The health of the public finances, and in particular government borrowing and debt, provide the context within which the Chancellor will make tax and spending announcements in the Budget.

Government borrowing – the difference between public spending and income raised from taxes and other sources – has fallen from the peacetime record reached in 2020/21 but remains higher than the past 50-year average. Borrowing is forecast to be equivalent to 4.5% of GDP in 2023/24. Both government spending and income raised from taxes and other sources are relatively high by UK standards.

In November 2023 the OBR forecast borrowing falling to around 1% of GDP in 2028/29, which is below the 50-year average and the amount borrowed before the Covid-19 pandemic.

In the main, borrowing is falling over the forecast because of lower government spending, including plans for spending on public services that look tight for some departments. Tax revenues are also forecast to rise, largely due to income tax receipts. Thresholds in the income tax system are being frozen at their April 2021 level until April 2028, which helps to increase income tax revenues.

Government debt (which is largely the stock of past borrowing) is equivalent to 96.5% of GDP. Debt is around 60% of GDP higher than it was in 2007. Debt increased significantly during the 2007-2009 financial crisis and the Covid-19 pandemic. The last time debt was higher than 90% of GDP was in the 1960s. Debt has been higher, though, particularly after periods of war.

Government’s underlying debt (excluding the Bank of England’s net debt) is 88% of GDP. This is the measure of debt used in the Chancellor’s target for government debt. The OBR forecast in March that underlying debt would continue growing each year before falling in 2027/28 and 2028/29.

The OBR’s March 2024 forecast

The OBR’s forecasts for the wider economy determine much of what happens in the public finance forecasts. For instance, inflation and the size of the economy are important for forecasting tax revenues and some areas of spending, such as welfare and debt interest. The Chancellor’s policy decisions are also important for the forecasts.

Speculation in the run up to the Budget has focused on taxes the Chancellor may cut. The Prime Minister and Chancellor have suggested that they want to make tax cuts. Cuts to personal taxes such as income tax and National Insurance contributions have been discussed as possibilities.

Tax cuts will have to be made within the constraints of the Chancellor’s targets for government borrowing and underlying debt (excluding the Bank of England's net debt). Both targets are focused on the fifth year of the forecast (which will be 2028/29) and both were being met in the OBR’s November 2023 forecast.

Economic situation

UK economic growth has been stagnant since the beginning of 2022, with high inflation and rising interest rates subduing economic activity. GDP declined over the final two quarters of 2023, meeting the definition of a “technical recession”.

Modest GDP growth is expected to return in 2024 as inflation is forecast to fall and the Bank of England is expected to start reducing interest rates. The consensus forecast among economists is for GDP growth of 0.4% in 2024.

After peaking at 11.1% in October 2022, a 41-year high, the inflation rate (the annual change in consumer prices) has declined to 4.0% in January 2024. Further reductions are expected, with the average inflation forecast among economists of 2.2% for the final quarter of 2024. However, measures of underlying inflation, such as those reflecting services prices, remain high and present a risk that overall inflation stays higher than anticipated.

Despite weak economic growth, the labour market remains tight, with unemployment low and wage growth high. The number of people classified as economically inactive – those not in work and not seeking work – has increased since the pandemic began. Most notable has been a large increase in the number of people who are economically inactive due to long-term ill health.

Further information

The Library will publish a summary of the Budget on the evening of 6 March 2024.

For a quick explainer on the Budget, see the Library Insight: What is the Budget?

Find all of the Library’s research on the 2024 Spring Budget in one place.