Rachel Reeves, the Chancellor, faces warnings of a potential shortfall in public finances ahead of her Spring Statement next week.
Emerging Risks Highlighted by IFS
The Institute for Fiscal Studies (IFS) analysis points to declining net migration and subdued tax receipts as key concerns. These factors are unlikely to pose major issues during the Spring Statement but could create significant fiscal challenges later in the year, potentially refocusing attention on fiscal rules by the autumn Budget.
Latest data reveals net migration well below the Office for Budget Responsibility (OBR) forecast for 2025. A sustained drop or stabilization at lower levels could reduce GDP growth and overall tax revenues substantially.
Despite higher-than-expected inflation and wage growth, tax receipts for 2025 remain somewhat subdued. The IFS notes each issue could dent future revenue forecasts, especially during formal assessments of fiscal performance this autumn.
Background on Prior Fiscal Pressures
Speculation dominated the lead-up to last November’s Budget, with concerns over spending plans. Reeves delivered a pre-Budget speech emphasizing ‘hard choices’ amid perceived financial strains. Subsequent OBR disclosures indicated a small surplus, prompting accusations that she misled the public to support a £30 billion tax increase package.
Expert Commentary
Nick Ridpath, research economist at the IFS and co-author of the analysis, states: ‘The Chancellor plans one fiscal event per year, so next week’s Spring Forecast should avoid major policy shifts. However, the OBR’s new forecast may expose risks to medium-term borrowing. A sharp net migration decline threatens future tax revenues. The OBR may await more data before revising its outlook, but ongoing trends could spotlight fiscal rules by the Autumn Budget.’
