Michael Saunders
@msaundersecon.bsky.social
Economist. Now Senior Advisor at Oxford Economics, previously BoE MPC 2016-22, economist at Citi and Salomon Brothers 1990-2016.
But they are likely to return, requiring tougher choices over tax and spending in the autumn Budget.
March 26, 2025 at 4:35 PM
But they are likely to return, requiring tougher choices over tax and spending in the autumn Budget.
It also is unclear how the UK will fund a further rise in defence spending to a minimum of 3% of GDP in coming years, which seems inevitable. Will the fiscal rules be changed (again) to accommodate this?
The Chancellor ducked these challenges today. …
The Chancellor ducked these challenges today. …
March 26, 2025 at 4:35 PM
It also is unclear how the UK will fund a further rise in defence spending to a minimum of 3% of GDP in coming years, which seems inevitable. Will the fiscal rules be changed (again) to accommodate this?
The Chancellor ducked these challenges today. …
The Chancellor ducked these challenges today. …
…and infrastructure, as well as a much higher burden from debt interest payments. The latest plans imply real-terms cuts in unprotected departments and there are no plans of how to deliver this: this appears optimistic rather than realistic. …
March 26, 2025 at 4:35 PM
…and infrastructure, as well as a much higher burden from debt interest payments. The latest plans imply real-terms cuts in unprotected departments and there are no plans of how to deliver this: this appears optimistic rather than realistic. …
…potential growth projections at some stage. And the Chancellor has again left little headroom against the fiscal rules, leaving fiscal policy vulnerable to even modest revisions to the economic outlook.
Moreover, there are ongoing pressures for higher public spending on health, defence…
Moreover, there are ongoing pressures for higher public spending on health, defence…
March 26, 2025 at 4:35 PM
…potential growth projections at some stage. And the Chancellor has again left little headroom against the fiscal rules, leaving fiscal policy vulnerable to even modest revisions to the economic outlook.
Moreover, there are ongoing pressures for higher public spending on health, defence…
Moreover, there are ongoing pressures for higher public spending on health, defence…
…to which planning reform will lift potential output in the next few years, despite widespread shortages of construction workers. Their forecasts for productivity growth in coming years remain higher than most outside forecasts, and it remains likely that the OBR will have to downgrade their…
March 26, 2025 at 4:35 PM
…to which planning reform will lift potential output in the next few years, despite widespread shortages of construction workers. Their forecasts for productivity growth in coming years remain higher than most outside forecasts, and it remains likely that the OBR will have to downgrade their…
If extra savings are needed elsewhere, I suggest replacing the state pension triple lock with a less generous approach and a gradual introduction of a road-usage charge, which will probably be needed eventually anyway as use of electric vehicles increases.
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January 30, 2025 at 5:53 PM
If extra savings are needed elsewhere, I suggest replacing the state pension triple lock with a less generous approach and a gradual introduction of a road-usage charge, which will probably be needed eventually anyway as use of electric vehicles increases.
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Over time, higher potential growth would improve the UK's fiscal position. And reforms to incapacity benefits would probably save money while also lifting workforce participation. Some – but not all – of these supply-side measures have an initial cost.
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January 30, 2025 at 5:53 PM
Over time, higher potential growth would improve the UK's fiscal position. And reforms to incapacity benefits would probably save money while also lifting workforce participation. Some – but not all – of these supply-side measures have an initial cost.
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The Council of Economic Advisors should be expanded and given a more public-facing role. This would help highlight the longer-term gains from supply-side policies, as well as helping build a broader consensus within government and externally on measures to lift potential growth.
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January 30, 2025 at 5:53 PM
The Council of Economic Advisors should be expanded and given a more public-facing role. This would help highlight the longer-term gains from supply-side policies, as well as helping build a broader consensus within government and externally on measures to lift potential growth.
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We also need a broad package to raise workforce participation, including more support for childcare costs, reforms to incapacity benefits, and changes to tax and private pension enrolment for older people in work.
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January 30, 2025 at 5:53 PM
We also need a broad package to raise workforce participation, including more support for childcare costs, reforms to incapacity benefits, and changes to tax and private pension enrolment for older people in work.
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Specific policies include easier visa rules for construction workers, higher allowances for intangibles investment, reforms to housing taxes, and closer trade links with the EU.
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January 30, 2025 at 5:53 PM
Specific policies include easier visa rules for construction workers, higher allowances for intangibles investment, reforms to housing taxes, and closer trade links with the EU.
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To raise potential UK growth, I suggesta broad package of measures that include raising investment, expanding workforce participation, and boosting total factor productivity.
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January 30, 2025 at 5:53 PM
To raise potential UK growth, I suggesta broad package of measures that include raising investment, expanding workforce participation, and boosting total factor productivity.
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…And in that case, the ensuing labour shortages and excess demand would probably prompt significantly higher interest rates, thereby eroding investment and weakening the fiscal position.
January 30, 2025 at 5:53 PM
…And in that case, the ensuing labour shortages and excess demand would probably prompt significantly higher interest rates, thereby eroding investment and weakening the fiscal position.
…and the fact that it takes a lot of investment to significantly raise capital stock growth.
In short, it would take a colossal rise in fixed investment to have a big effect on potential growth over 5-10 years.
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In short, it would take a colossal rise in fixed investment to have a big effect on potential growth over 5-10 years.
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January 30, 2025 at 5:53 PM
…and the fact that it takes a lot of investment to significantly raise capital stock growth.
In short, it would take a colossal rise in fixed investment to have a big effect on potential growth over 5-10 years.
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In short, it would take a colossal rise in fixed investment to have a big effect on potential growth over 5-10 years.
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In particular, the current approach will run up against shortages of construction workers, the risk that expanding investment when the economy is already close to zero output gap will simply put upward pressure on interest rates, …
January 30, 2025 at 5:53 PM
In particular, the current approach will run up against shortages of construction workers, the risk that expanding investment when the economy is already close to zero output gap will simply put upward pressure on interest rates, …
This is partly because a five-year horizon is too short to reap the full benefits of supply-side policies: a 10–20-year timeline is more realistic. But it's also because the government needs to go even further to make significant gains over that longer horizon.
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January 30, 2025 at 5:53 PM
This is partly because a five-year horizon is too short to reap the full benefits of supply-side policies: a 10–20-year timeline is more realistic. But it's also because the government needs to go even further to make significant gains over that longer horizon.
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The government's policies to lift potential growth – mostly aimed at strengthening fixed investment – are a good start.
But, even so, I doubt the government's approach is sufficient to significantly raise potential growth over the next five years.
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But, even so, I doubt the government's approach is sufficient to significantly raise potential growth over the next five years.
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January 30, 2025 at 5:53 PM
The government's policies to lift potential growth – mostly aimed at strengthening fixed investment – are a good start.
But, even so, I doubt the government's approach is sufficient to significantly raise potential growth over the next five years.
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But, even so, I doubt the government's approach is sufficient to significantly raise potential growth over the next five years.
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But, overall, this Budget marks a major step to return the UK to fiscal sustainability while not damaging - and probably improving - longterm growth prospects.
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October 31, 2024 at 9:33 AM
But, overall, this Budget marks a major step to return the UK to fiscal sustainability while not damaging - and probably improving - longterm growth prospects.
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So you certainly can’t rule out the risk that adverse forecast revisions in future Budgets could require the Chancellor to raise taxes further.
There is also much still to be done on tax reform, as well as supply-side measures to lift potential growth.
There is also much still to be done on tax reform, as well as supply-side measures to lift potential growth.
October 31, 2024 at 9:33 AM
So you certainly can’t rule out the risk that adverse forecast revisions in future Budgets could require the Chancellor to raise taxes further.
There is also much still to be done on tax reform, as well as supply-side measures to lift potential growth.
There is also much still to be done on tax reform, as well as supply-side measures to lift potential growth.
…2-3 years – for this effect to be clearly evident.
Reeves has chosen to ‘kitchen sink it’ in this Budget, with large tax hikes to cover sizeable increases to spending. Barring adverse shocks, further tax hikes will probably not be needed in subsequent years. But fiscal headroom is very limited.
Reeves has chosen to ‘kitchen sink it’ in this Budget, with large tax hikes to cover sizeable increases to spending. Barring adverse shocks, further tax hikes will probably not be needed in subsequent years. But fiscal headroom is very limited.
October 31, 2024 at 9:32 AM
…2-3 years – for this effect to be clearly evident.
Reeves has chosen to ‘kitchen sink it’ in this Budget, with large tax hikes to cover sizeable increases to spending. Barring adverse shocks, further tax hikes will probably not be needed in subsequent years. But fiscal headroom is very limited.
Reeves has chosen to ‘kitchen sink it’ in this Budget, with large tax hikes to cover sizeable increases to spending. Barring adverse shocks, further tax hikes will probably not be needed in subsequent years. But fiscal headroom is very limited.
The Budget will slightly reduce the extent to which fiscal policy drags on growth. But it will still be a drag rather than stimulus. Further ahead, higher public investment will lift potential growth. But it will take time and a sustained period of higher investment – more like 10 years than…
October 31, 2024 at 9:31 AM
The Budget will slightly reduce the extent to which fiscal policy drags on growth. But it will still be a drag rather than stimulus. Further ahead, higher public investment will lift potential growth. But it will take time and a sustained period of higher investment – more like 10 years than…
The MPC remains likely to cut rates 25bp next week and to cut rates significantly further over the coming year, returning to a more neutral position as core inflation and pay growth slow further.
The UK is set for modest growth in the next year or two.
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The UK is set for modest growth in the next year or two.
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October 31, 2024 at 9:30 AM
The MPC remains likely to cut rates 25bp next week and to cut rates significantly further over the coming year, returning to a more neutral position as core inflation and pay growth slow further.
The UK is set for modest growth in the next year or two.
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The UK is set for modest growth in the next year or two.
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…fully delivered, given the lack of detail of how it would be achieved.
Third, the extra capital spending will (as OBR research has shown) help the economy’s underlying growth trend over time, thereby generating higher tax revenues that limit the eventual net cost.
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Third, the extra capital spending will (as OBR research has shown) help the economy’s underlying growth trend over time, thereby generating higher tax revenues that limit the eventual net cost.
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October 31, 2024 at 9:29 AM
…fully delivered, given the lack of detail of how it would be achieved.
Third, the extra capital spending will (as OBR research has shown) help the economy’s underlying growth trend over time, thereby generating higher tax revenues that limit the eventual net cost.
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Third, the extra capital spending will (as OBR research has shown) help the economy’s underlying growth trend over time, thereby generating higher tax revenues that limit the eventual net cost.
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