The first Labour budget for 14 years and the first ever delivered by a female chancellor was also momentous in its expected expansionary impact on the economy (net fiscal loosening adding to aggregate demand) notwithstanding that its planned annual tax increases of around £36bn will take the share of tax to GDP to record levels.
This post reflects and focuses on its implications, according to three main headings: the real crisis of the fiscal state; fiscal institutional reform and public investment planning and delivery (which includes investment in public (social) housing as a case study); and Labour’s 1.5m housing target – scaled down to putting the annual new supply of 300,000 dwellings onto a sustainable footing by the end of this current parliament.
The Autumn Budget 2024 Treasury Red Book (Red Book) and the Office of Budget Responsibility (OBR) October 2024 Economic and Fiscal Outlook provide its main source documents.
The fourth section, waiting for Mr Growth, notes that although the OBR post-budget assessment and its five-year forecast indicate continuing levels of stunted growth during the lifetime of this 2024-29 parliament, it does not take account of the future policy and economic impacts of the Spring 2025 Comprehensive Spending Review (2025 CSR), or of planning reform, or of the future operation of the National Wealth Fund combined with pension fund reform.
Together they will prove pivotable as to whether the actions of this Starmer government (besides external shocks and events) can and will uplift the annual growth rate towards the 2.5% level more consistent with both a sustainable welfare state and public finances.
1 The Real Crisis of the Fiscal State
The real crisis of the fiscal state (RCFS) is the mismatch between the public expenditure requirements of the UK (assuming a continuing public desire and demand for accessible and universal public services and goods on the European social democratic model) and the political and electoral willingness for them to be met through forms of taxation that are efficient, sufficient, and transparent.
It means that the dominant political parties promise to reduce or at least not to raise taxes while also claiming that they will improve or at least protect public services that require real (inflation-adjusted) increases due to the increased demands of an aging population, higher relative costs and other related reasons.
Essentially, that is an incompatible combination with the stunted levels of growth that the UK has clocked-up since the Global Financial Recession (GFC) a decade and half ago.
The October 2024 budget (budget) followed an election where the previous Conservative government had within a six-month period twice reduced employee national insurance rates by two per cent, despite knowing that doing so would either require unsustainable future levels of borrowing or unachievable future cuts to already unrealistically low planned spending plans.
Labour when in opposition supported both these cuts (in essence, pre-election bribes) while committing itself in government not to increase headline rates of income tax, national insurance or VAT: its tax self-denying ordinance.
Notwithstanding previous and some continuing protestations to the contrary, the budget will increase taxation substantially on non-affluent working people.
First and foremost, the continuing freeze until April 2029 of income tax thresholds, to all intents and purposes, is a tax increase, chipping away both nominal and real increases in pay, bringing either into tax or into the higher tax bracket millions of extra taxpayers.
It is an expedient and effective but also an invidious, distortive, and stealthier way to raise revenue compared to increasing headline rates, raising around £28bn for the public coffers in 2025-26, rising to nearly £38bn by 2028-29.
Second, the increase in employer’s national insurance contributions (NIC) from 13.8% to 15%, made effective at a lower threshold and without a limitation of a higher threshold, is expected to raise around another £25bn annually from 2025-26 to 2029-30 (static effects not taking account of behavioural responses by economic agents), more than offsetting the £20bn reoccurring annual cost of the previous government’s successive employee NIC cuts (see OBR Table 3.9).
Workers will consequently receive lower wages and/or pension contributions than they would otherwise have done without the NIC increase. Future real wages will be further dragged down by businesses, where and when they can, levying higher prices rather than lower profits accommodating their resulting higher costs.
Increasing in employee NIC or income tax rates instead would have had a more immediate, direct and thus salient impact on nominal post-tax employee incomes; the employer NIC increase is likely to have a more muted, delayed, and hidden although still real effect over the forecast period. The employer NIC increase is a direct and salient cost for businesses.
Where businesses take the hit of employer NIC increase through lower profits that is potentially redistributive in terms of its relative incidence between capital and labour. The lack of threshold limitation is also possibly redistributive (but less so than a direct increase in the income tax rate) although it could incentivise off-PAYE employment and other distortionary arrangements, reducing its yield.
On the other hand, the increased liability to pay employer NICs at a lower threshold combined with an increased minimum wage is likely to bear down on lower-wage workers through reduced employment effects.
According to the OBR forecast, the combined impact of the continuing tax threshold freeze and the new employer NIC increase (plus some other smaller tax increases) will take the tax take by 2029-30 to a historic high of 38 per cent of GDP, causing private consumption to fall as a share of GDP.
That, along with the short-term squeeze on profit margins occasioned by the employer NIC rise, is expected to further deflate business investment further. Already, its share of GDP is one of the lowest in the industrialised world, representing a core and chronic determinant of the UK’s stunted post GFC growth and productivity record.
On the face of it, therefore, the budget (when its policies are considered in isolation), over the medium term (essentially the five-year OBR forecast period) will not only increase taxes on working people in real outcome terms but will retard future growth: quite contrary, in effect, to the government’s avowed aims.
Labour had to win an election. Its tax self-denying ordinance and limited ambition costed fiscal pledges were made to neutralize Conservative attempts to paint it again as the ‘tax and spend’ party as happened to instructive effect in 1992, 2010, and 2015.
But it also constrained honest public debate on the fiscal situation and future choices concerning that and the state of the public realm, as well as boxing-in Labour’s own future policy maneuverability in government.
In retrospect, the public had realized intuitively that post-election tax increases were inevitable, regardless of the political complexion of the new government, and proceeded to punish successive incumbent Conservative governments for their incompetence, their poor behaviour, and their lack of delivery, while in office.
The second Conservative employee NIC cut, at least, could have been opposed as an obvious unsustainable electoral bribe. The Labour leadership, however, did not want to risk any suggestion that they would reverse any Conservative tax cut and thus increase direct tax rates; hence Labour’s self-denying ordinance and resort to alternative sources of revenue.
In short, the budget, compared to March 2024 budget plans, increased planned public spending by almost £70 billion annually (a little over two per cent of GDP) from 2025-26 to 2029-30, split two-thirds on current and one-third on capital spending, paid for by increased taxes amounting to £36bn annually, requiring increased average annual borrowing of £32bn, (see OBR Table 3.1 for more precise figures).
A not unsensible combination that provided a substantial real 3.3% increase in the NHS England budget (OBR Table 5.4) that when, hopefully, combined with the early beginnings of necessary embedded and continuing future productivity and efficiency gains, should provide at least a temporary respite to some of its structural funding and delivery challenges.
Yet, overall, the budget only kicked the real fiscal can down the road. In a muted reprise of Conservative fiscal dishonesty, most departments face limited increases or even real term cuts in their budgetary allocations beyond 2024-25 (subject to 2025 Comprehensive Spending Review decisions).
It yet again froze fuel duty during a period of falling fuel prices at the beginning of a government term when it can better ride out short-term negative reactions. If not now, when? Sure, an increase could have added to cost-of-living pressures (more especially in rural areas) but the new government lost an opportunity to introduce a wider narrative consistent with its decarbonization vision.
That could have included a pledge to adjust the duty with future fuel prices to smooth future net price volatility more conducive to consumer and business budgeting.
Making the current budget balance will mean a combination of future cuts and/or further tax increases, unless future economic growth surprises on the upside (see section four).
The political risk for Starmer’s Labour government is that its own fiscal dissembling will come back to bite it, especially given the shallow popular base of its 2024 victory (its high majority was a product of the efficient distribution of its vote, not its relative volume) and the secular trend for greater electoral volatility and fragmentation.
It could have to paying a continuing and mounting economic and political price for becoming an increasing hostage to the RFCS, however much it twists and turns to escape its clutch.
The unfreezing of income tax thresholds in 2029-30 no doubt will be presented then as a tax cut pre-next election (it may also avoid the triple-lock pension being taxed when received as sole source of taxable income) amid, quite possibly, another proclaimed self-denying ordinance on future direct tax rates, thus repeating and in the process entrenching the fiscal circus cycle yet again, something that may or may not prove electorally successful.
At the end of the day, treating the electorate as children unable to grasp economic and financial realities is not sustainable in strategic political terms in either narrow party or national interest terms.
Sooner or later the music will stop, while the further embedding and entrenchment of popular distrust and cynicism pervading politics can only undermine and corrode the democratic process itself, risking destructive results.
There is no easy way of the RCFS in either political or policy terms. Few of us welcome political messengers telling us that we should pay more tax upfront or must accept reduced public service quality and coverage.
Better the pill sugared, disguised, or even better postponed, even though it might make the pain worse sometime in the future. After all, something might turn up; why put your head above parapet to be shot, until you must?
Council tax reform towards aligning payment to current housing values combined with the phasing out of housing stamp duty (see this Dan Neidle post for a clear and informed discussion) and getting the financially comfortable elderly to pay more towards their health and social care seem to provide the most obvious possible partial escape routes out of the RCFS but still involve considerable political management risk.
Certainly, at least some political groundwork should start to be laid to shift the tax burden away from productive activity towards wealth and to better link individual contribution to potential benefits received, where possible and appropriate.
Less politically challenging and more attainable sooner rather than later is making public spending more effective and productive. To that necessary but not sufficient route of the RCFS, the next section turns.
2 Fiscal Institutional Reform to Make Public Investment Planning and Delivery More Efficient and Effective
The budget set out a two-pronged revised fiscal framework. The stability rule will require the current budget to be in forecast surplus in 2029-30 (as assessed by the OBR) until that year becomes the third year of the forecast period in 2026-27.
From 2027-28 onwards, the current budget must then remain in balance or in surplus from the third year of the rolling forecast period (for example, from 2030-31 in 2027-28). Balance is defined as a range: in surplus; or in deficit of no more than 0.5% of GDP.
The second prong – the investment rule – will require net public debt, now defined as Public Sector Net Financial Liabilities (PSNFL), to fall as a share of the economy (GDP) by 2029-30, until, like the stability rule, 2029-30 becomes the third year of the forecast period in 2026-27.
Then to meet that rule, net financial debt (PSNFL) should fall as a share of GDP by the third year of the new rolling forecast period: 2030-31, if assessed in 2027-28.
In addition to the stock of debt that the Public Sector Net Debt (PSND) measure previously captured, the replacement PSNFL or net financial debt measure now includes financial liabilities, such as funded pensions obligations and government guarantees.
Crucially, however, it also nets off illiquid financial assets, such as equity holdings and loans, from total financial liabilities to calculate the headline net financial debt metric.
The Treasury in support of this change pointed out in its Red Book that by failing to count financial assets, the previous PSND metric could create an incentive for the government to forgo profitable and growth enhancing investments, such as that are expected to be made by the National Wealth Fund, despite any positive future impact upon the economy and their ability to yield a positive return for the taxpayer over their lifetime(s).
Yet PSNFL does not recognize the value of physical public assets, including road and railway networks, and public housing.
Its use, therefore, risks creating a new set of perverse incentives for government to make investments in financial rather than physical assets, making loans and issuing guarantees in preference to investing directly in productive assets, simply to accord with the investment rule rather than because of overall long-term value-for-money (vfm) grounds.
Indeed, it does seem that PSNFL was made the primary debt metric for fiscal rule measurement purposes mainly because it provided the government with additional expenditure headroom in the desired format: the most expedient rather than necessarily the most optimal measure.
It did enable the budget to announce a total increase in planned public capital investment of around £100bn over the next five years over and above previously planned levels.
As the prequel to this post argued, it would, however, have been better for the chancellor to make the case for additional investment clearly, directly and transparently, according to its economic and thus fiscal sustainability merits, rather than tweaking fiscal second order rules that when political push comes to shove inevitably tend to be gamed or changed.
As way of historical context, Conservative governments in the early nineties tended to rely upon second order objectives, such as the exchange rate, to bear down on inflation rather than making low and stable inflation a first order objective supported by reformed institutional architecture as New Labour did to notable success in 1997.
Whether the new investment rule is met or not will depend upon a range of factors, including future inflation and interest rate trajectory, and growth and productivity outcomes. These the government can only at best partly influence by its own policy and other interventions.
It will then rely upon the OBR to adjudicate whether the rule is on track to be met according to that organisation’s forecasts.
At present, the OBR is only about 50% confident that its current assessment that the government post-budget has about £15.7bn fiscal headroom to meet the investment rule will prove accurate.
That headroom could vanish in a flash in the event of an external shock or be dissipated by lower than forecast growth – which the OBR has a history of over-estimating – leaving a lot to contingent hostage, including, for instance, that growth will even reach two per cent in 2025.
Whether the new investment rule is met or missed by a percentage point or so according to the chosen measurement metric of the day is unlikely to make much material macro-economic difference.
The clear and present danger rather is that investment projects that would generate returns over their cost of provision (including their capital opportunity or cost of capital costs) will be shelved, delayed, or pared back simply to keep within the investment rule target three to five years thence, according to forecasts and assumptions that may or may not be realised that invariably can shift with the short-term economic environment and its associated noise.
Undoubtedly the government must maintain wider market confidence that its fiscal position is sustainable. Otherwise, interest rates will rise, sap growth, and offset or dissolve the benefits of such productive public investments.
But the investment rule sidesteps the imperative to increase effectively selected and prioritised productive levels of public investment closer to economically optimal levels requiring chosen programmes and projects to be both efficiently selected and delivered.
The budget did announce some steps and “guardrails” to ensure improved investment outcomes, including:
- publishing a 10-year infrastructure strategy alongside phase two of the forthcoming spring 2025 CRS, outlining the government’s long-term approach;
- setting five-year capital budgets and extending them every two years at regular spending reviews, to “provide more certainty”;
- increasing the transparency of investment decisions by publishing the business cases for major projects and programmes.
At a more substantive institutional level, the National Infrastructure and Service Transformation Authority (NISTA), combining the functions of the existing National Infrastructure Commission and the Infrastructure and Projects Authority, will be made operational by spring 2025.
NISTA will then become responsible for implementing the government’s infrastructure strategy, validating business cases, prior to HM Treasury funding approval.
The budget also finally announced the formal launch of the Office for Value for Money (OVM), with the appointment of an independent Chair, who as a first step, will advise the Chancellor and Chief Secretary to the Treasury on decisions relating to the multi-year spring 2025 CSR.
The wider remit of the OVM will include an assessment of where and how to root out waste and inefficiency; the undertaking of value for money studies across high-risk areas of cross-departmental spending; the scrutiny of investment proposals to ensure they offer value for money; as well as working with the National Audit Office (NAO) to benefit from that organisation’s scrutiny of capital projects to learn lessons for application to future projects.
Although these represent potential steps forward, the respective roles of NISTA and OVM are not clearly demarcated and appear to partly overlap.
A potentially more fundamental and possibly related possible shortcoming is that they are not statutorily defined as entities independent of the Treasury, even though their future effectiveness will depend on their own institutional clout and resourcing.
Their creation and development should have been and should now be made central and integral to the government’s overarching growth mission and commitment to economic and fiscal sustainability – not a subsidiary budget add-on.
The long-term impacts of public investment: social housing as a case study
The OBR has estimated that the additional public investment over and above the previous government’s plans as announced in the budget should directly increase the total potential output of the economy after five years by 0.1%.
That could increase to 0.3% after ten years if the planned increase is maintained, as the resulting output effects rise over time while implementation time lags recede.
If that increase further levers-in complementary private investment and human capital upskilling, the GDP uplift could reach 0.4% after ten years and 1.4% after fifty years.
However, the OBR believes that the economic benefit of the increased public investment will prove more muted due to the impact of higher public borrowing on interest rates and the associated limited complementarity crowding-in of private investment.
Although it should increase incentives for businesses to invest, that broader crowding out effect of the budget’s net fiscal loosening, driven by a sustained increase in real government spending as a share of GDP within a capacity-constrained economy, is forecast by the OBR to reduce business investment by the end of the five-year period.
Such conclusions, including the differential macro-economic impact of different categories of public spending, such as public investment and government spending on current services (consumption), are dependent on the econometric assumptions that the OBR applies, based on its interpretation of the empirical literature.
Alternative interpretations of that literature, such as here, have queried whether the OBR’s assumptions on the impact of public investment through its fiscal multipliers on output, and on the future total supply capacity of the economy (and thus its ability to absorb increased output without inducing inflation), are too conservative.
Moreover, public housing investment is singled out by the OBR as less growth enhancing than alternative investments in enhanced economic infrastructure, including on transport networks, on water supply, and on sewerage, implying that its net economic effects could be negative over the long term.
As way of contrast, an October New Economics Foundation paper argued that as public grant supported social housing would not otherwise be built, the socio-economic returns that it generates is higher than private housebuilding.
It cites the high construction multipliers associated with housebuilding (for every one pound generated directly, a further £1.43 is generated indirectly and through wider spending in the economy) on top of tenure-specific social returns linked to lower housing benefit expenditure, reduced homelessness and family dislocation, and through its employment-enhancing effects increasing taxation receipts and reducing social security expenditures,
In sum, according to the NEF, building 365,000 social homes – the minimum number it assesses are needed to deliver the government’s 1.5m housing delivery target – would yield, aggregating all the above gains, total gross economic and social benefits of around £365bn over 30 years.
Net of public investment costs – in terms of central government grant and local authority expenditure – its total net benefit is posited at £225bn over three decades, with every one pound of the up-front public investment required to deliver that volume of social housing generating more than £2.60 for the wider economy in return.
The paper links a rising proportion of that overall economic benefit exclusively to the social rent sub tenure (let at around 50% of market rents depending on location) with 43% (£158bn) of this total gross economic and social benefit attributed specifically to that sub tenure.
That final net benefit figure reflects proposed changes to the social discount rate (SDR) currently applied in accordance with Treasury Green Book methodology.
An SDR of two per cent applied to social housing investment, less than the Treasury’s current standard 3.5% – still above Germany’s SDR and in line with the general US government SDR, which was reduced to two per cent earlier this year – would result in the 365,000 social housing programme generating £50bn more in net present social value benefits compared to the current Treasury approach.
These results, of course, are like the OBR’s, predicated on organizational and study-specific assumptions applied, which likewise, are challengeable, especially when they are drilled down on.
No account is taken of the likely crowding-out effects of such a programme. Leaving aside, the possible impacts of resulting higher levels of borrowing on interest rates, its impact on a capacity constrained construction industry is almost certain to lead to material and skilled labour bottlenecks and resultant sector-specific inflation – at least in the absence of concerted and focused public interventions undertaken in partnership with industry suppliers in step with its scaling up.
The NEF paper also assumes that the overwhelming demand for social housing will mean most of the economic benefit of investment in social housing is likely to be realized.
That, to say the least, is a heroic assumption. Based on past empirical experience of employment levels within the Social Rent (SR) sub-tenure, it is far from certain that, in practice, an expanded SR programme by itself will increase overall economic activity levels.
Although reduced levels of homelessness can be reasonably expected, social returns relating to family stability and improved health will prove more difficult to demonstrate rather than to state and assume.
An extended 30-year period is especially prone to uncertainty and confounding impacts, and so on.
The NEF study, did, however, clearly explain and define in plain English its underlying assumptions rather than rely, as the OBR tends to do, on econometric equation notation unintelligible to most lay audiences (the NEF paper’s appendix on social discounting is a commendable model for general replication).
What can be more safely concluded is that the economic and social impact of an expanded SR programme is a highly important and relevant issue that requires and needs further dedicated evidence-led and transparent scrutiny and assessment.
This is where both NISTA and the OVM could and should play pivotal and instrumental roles.
3 Labour’s Housing Delivery target
The chancellor in her budget speech termed Labour’s 1.5m housing delivery target as “a commitment”, which was worrying insofar that it rather suggests that she does not understand that it will not be achieved for the reasons explained here.
It risks becoming a distraction from the more sensible and realistic goal of laying the foundations of a sustainable 300,000 annual new supply level by the end of this parliament in 2029.
Most commentators consider that to meet the existing and future needs of those not able to afford market costs, an annual and sustained Social Rent (SR) programme level of at least 90,000 dwellings in England, plus another 30,000-50,000 of intermediate sub tenure, is required.
That roughly corresponds roughly with what is consistent with the achievement of a sustainable 300,000-plus annual new housing supply in England, assuming that annual private speculative market supply, going forwards from 2027-28, can be sustained at the 170,000-180,000 dwelling level (see previous link for more detail).
The budget did announce a £500 million uplift to the 2021-2026 Approved Development Programme (ADP) – from which public grants to support affordable housing provision are made – increasing its 2025-26 budget to £3.1 billion, while making the claim that is “the biggest annual budget for affordable housing in over a decade”.
It should, according to the budget announcement, enable 5,000 additional (SR + intermediate) affordable dwellings to be provided, over and above previous plans. An average unit public grant support of 100K is thereby implied, suggesting that most of these newly provided dwellings, if delivered, will be let at SR levels within high cost and high need metropolitan areas.
Putting that into context, recent annual levels of SR provision are running at around 14,000 , which even if increased by 5,000, will remain way below the above required 90,000 level.
Stepping up to that would require additional annual public grant support, phased up and then sustained in the £4bn to £10bn range. Precise future funding requirements will depend on the location and the provision outturn costs of the units provided, as well as on the future relative contribution of S106 affordable housing obligations to the 90,000 dwelling total.
The chancellor went on to confirm that “to deliver on the commitment to get Britain building”, the government in the spring 2025 CSR will set out further details of future grant investment allocations beyond the current ADP and that these will run for at least the duration of this parliament and support a mix of tenures, with a focus on delivering homes for SR.
Clearly, the spring 2025 CSR housing settlement will prove pivotably crucial to the government’s housing ambitions. The budget advised that the CSR will take a “mission-led, reform-driven, technology-enabled approach to funding public services, while investing in long-term growth”.
We can only wait and see the outcome of that late next spring, which should allow us to model more definitively expected levels of affordable provision and its contribution to the government’s delivery target to the end of this parliament and beyond.
In that light, it is unfortunate that the fiscal institutional reforms that the preceding section discussed are unlikely to be operative in time to comprehensively contribute within the forthcoming CSR to a more evidence-led and transparent consideration of the economic and social benefit of additional SR and intermediate provision relative to their up-front public investment costs.
Hopefully, however, that consideration is accorded sufficiently high priority within both the portals of the Treasury and the nascent NISTA and OVM, for a useful stab in that direction to be made.
Other housing fiscal measures that the budget announced included providing an additional £233m to prevent homelessness, taking total spending to one billion on that in 2025-26, an increase designed to prevent rises in the number of families in temporary accommodation and to reduce rough sleeping.
An additional £3bn was also announced to support for SMEs and the Build to Rent sector in the form of housing guarantee schemes, designed to help developers to access lower-cost loans and to support “the delivery of tens of thousands of new homes”.
At a more micro level, £10m of funding was assigned to enable the Cambridge Growth Company to develop an ambitious plan for the housing, transport, water and wider infrastructure to unlock and more fully realise the economic growth potential of that high value-added sub region.
Curiously, housing benefit housing allowances were frozen. Although that might offer central government a revenue saving, it can only be expected to add rather than reduce homelessness problems and their associated revenue costs that largely fall on cash strapped local authorities.
Perhaps, the freeze is a precursor to a wider strategic drive to shift low-income tenants out of insecure private rentals and into SR at a lower public HB cost, which the 2025 CSR will progress as part of a wider housing strategy. It is , however, rather suggestive of non-joined up thinking that will have arbitary results.
This is another issue that could benefit from some future OVM scrutiny and NISTA consideration analysis of the longer-term cost-benefit consequences of such a shift from the PRS to SR.
4 Waiting for Mr Growth
The government has confirmed that this and future budgets will be a once-a-year fiscal event focused on tax, spending, and borrowing decisions only, separate to the government’s wider growth-enhancing strategy and decision making.
The OBR forecasts that the economy to grow by 1.1% in 2024, increasing to two per cent and 1.8% in 2025 and 2026, before returning to around the OBR’s current estimate of its sustainable non-inflationary potential growth rate of around 1.5%, 1.5%, and 1.6% in 2027, 2028, and 2029, respectively, remaining below pre GFC levels. Such levels would generate insufficient resources to reset public services for a rising and ageing population onto a sustainable path.
Even these muted levels may not be realized. The OBR has a forecast track record of optimism bias. Evidence of private sector ‘animal spirits’ or even confidence is currently difficult to discern, as are drivers to uplift private consumption, investment, and productivity.
Trumpian trade tariffs and the risk of further international instability in the Middle East and Ukraine represent further downside risks.
The main expected contributor to growth, higher government consumption, unlikely by itself to materially improve productivity and sustainable growth, and will be dependent on 2025 CSR decisions and outturns.
As Section Two discussed, increased public investment, although expected to have a short-term positive impact on GDP will, according to the OBR, have a limited and slow impact on longer term growth outcome due to low or even negative complementarity (crowding-in private investment) and output/fiscal multiplier effects, although, as the preceding section discussed, the assumptions used in the in-house study that the OBR used, determining that result, appears pessimistic.
Moreover, OBR forecasts take account only of already announced government policies and their expected impacts, not possible future policies, such as changes to the National Planning Policy Framework that the new government proposed in July 2024 that together with wider planning reform and future National Wealth Fund activity, the government is relying upon to catalyse an upward shift in the future growth trajectory.
The OBR did recognise in its budget outlook that future planning reform when finalized and implemented could result in its housing supply forecast proving pessimistic, providing an additional domestic growth driver.
However, planning reform alone (see previous link) will not result in the government’s flagship 1.5m delivery target being met.
Although it might succeed in pushing up the number of planning permissions granted above its current historically low levels, their translation into future housing construction activity will be uncertain and partial.
The current private speculative housing model is predicated on the secure prospect of rising house prices and the ability of dominant suppliers to dribble out supply to maximise margin not volume. On the public delivery side, it is unlikely that CSR 2025 will provide increased allocations anyway near consistent with a new annaul supply step increase to 300,000 dwellings in England.
The next generation of New Towns will not come on stream substantively until the next decade. Their funding and provision models will need to be developed over the next year or so in such a way that public investment inputs can be stretched and private investment levered in.
The National Wealth Fund as a source of pump-priming investment supported by pension fund reforms – if they prove effective and timely – could allow a shift to a partial public contracting partnership model – something the change to PSNFL measurement metric (see section two) could help to enable in public accounting terms.
But, in truth, the public action way forward to higher growth is currently hazy and undefined.
Some minor editing changes ti improve clarity were made on 24th November to the orginally posted version.