. There are also two further sources of headroom. First, the plans are based on energy prices averaging £3.70 per therm in the first quarter of 2023. But as of today, gas futures for the first quarter of 2023 are trading at around £3, suggesting inflation may fall faster than Hunt's plans imply and the recession in 2023 might be a little less severe. Second, the OBR's forecasts are for growth below 1.5 per cent on average over the next five years, and even by the end of the period the growth in potential output is only up to 1¾ per cent. The OBR notes this is: 'a full percentage point lower than the average growth rate in the decade prior to the financial crisis and around a third of a percentage point below the post-financial crisis average'. The OBR says this is 'slightly higher than the external consensus' but it is clear that there is scope for growth to outperform such a gloomy projection. Tax is scheduled to reach 41.7 per cent of GDP in 2024/25, the highest level since 1969/70, and the second-highest since 1950. Total public expenditure is scheduled to reach 47.3 per cent of GDP this year (2022/23), which – aside from the Covid year of 2020/21 – will be the highest level of public spending since comparable records began after World War II. Spending is scheduled to grow slightly slower than the economy and reach 43.4 per cent of GDP by 2027/28. But the five-year average level of spending from this year ahead will still be higher than it was in any year of any Lab){kind=link}
Spending as a percentage of GDP on a five year average will now be higher than under any previous Chancellor – Conservative or otherwise
Jeremy Hunt’s Autumn Statement enacted a fiscal consolidation of £55 billion over the next five years. This is austerity on a much more modest scale than that of the Osborne years – more like 2 per cent of GDP than the 5 to 6 per cent of GDP consolidation announced in 2010. Though unpleasant, it is a much more “normal times” kind of deficit reduction programme.
These measures give around £9 billion of headroom versus the fiscal rules (specifically the rule that debt must be falling in five years). There are also two further sources of headroom. First, the plans are based on energy prices averaging £3.70 per therm in the first quarter of 2023. But as of today, gas futures for the first quarter of 2023 are trading at around £3, suggesting inflation may fall faster than Hunt’s plans imply and the recession in 2023 might be a little less severe.
Second, the OBR’s forecasts are for growth below 1.5 per cent on average over the next five years, and even by the end of the period the growth in potential output is only up to 1¾ per cent. The OBR notes this is:
“a full percentage point lower than the average growth rate in the decade prior to the financial crisis and around a third of a percentage point below the post-financial crisis average”.