This was a Budget where the main announcements were trailed well in advance. 

The Chancellor confirmed a 2p cut to National Insurance Contributions to both employees and self-employed – a move which costs £10billion a year and reduces taxes paid by the median Scottish employee by £342 a year.

But taxes as a share of national income are still going up from year from 2024/25 onwards – just by less than in the November forecast. 

The tax-to-GDP ratio is forecast by the Office for Budget Responsibility (OBR) to hit 37.1% by 2028/29, coming just under the 1948 record-high of 37.2%. 

This is partly because the Chancellor has used some targeted tax increases such as the abolition of the ‘non-doms’ regime and a new excise duty on vaping.

More broadly, however, the trajectory of the tax-to-GDP ratio is driven by the threshold freeze, which the Chancellor has left unchanged despite cutting the headline rate of NICs. These ‘stealth’ tax increases together raise £41bn – nearly double the amount that the Autumn Statement and Budget measures reduce taxes by.

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There will be 3.7m more people brought into paying income tax than would if the personal allowance had been indexed with inflation - a 10% increase in taxpayers.

So sure, taxes won’t go up by as much as they would have done, but are still going up pretty strongly. Is that a tax cut? You decide.

Inflation has receded more quickly than expected. It should drop below the UK’s 2% target later this year.

The OBR expects inflation to slow to an average of 2.2% this year and 1.5% in 2025 before gradually returning to target at the end of the forecast period. 

The lower inflation forecast is driven by expected significant drops in global energy prices and weaker domestically generated inflation.

Lower inflation helps the UK’s growth prospects and a faster recovery in living standards from last year’s record decline.

Real household disposable income (that is, how much money households have to spend on average after taxes and benefits) is now forecast to return to pre-pandemic levels in the next year – two years earlier than previously forecast.

While the financial year 2022/23 remains the most significant year-on-year decline in living standards since the 1950s, the OBR now anticipates average annual growth of around 1% in living standards over the forecast period.

This is good news for people across the country, even if it is a relatively small increase after half a decade of stagnation. But it’s not all good news…

One of the most pessimistic parts of the OBR’s publication is the decline in the participation rate over the forecast period.

Recent data suggests that the increase in economic inactivity after the pandemic is lasting longer than expected. 

Although policies like childcare expansion and welfare reform are expected to increase labour supply, the impact is offset by the ‘fiscal drag’ from frozen personal tax thresholds.

As a result, the labour participation rate is projected to decline from its pre-pandemic peak of 64.3% to 62.8% by 2028.

This is not exactly brilliant news for the PM’s plan to get people ‘back to work’ and one of the drivers of medium-term economic growth.

The Chancellor already had limited headroom (£12.2bn) against his self-imposed fiscal rule of debt falling in the final year of the forecast.

This is virtually wiped out by the measures in this Budget, especially after accounting for the freezing of fuel duty which we expect will continue as it has in every year since 2011.

In that case, headroom would be £4.5bn against what is already a very loose fiscal rule. Such a small amount of headroom is essentially zero - even a small downward movement in the economy would mean the rule being broken.

Resource spending is forecast to grow by only 2% across the whole forecast; capital, meanwhile, is projected to be cut by 8% in real terms over the next five years. 

It’s hard to see how this can be sustained throughout the next Parliament – no wonder the OBR Chair labelled them a ‘work of fiction’.

What does it mean for the Scottish Government?

Barnett consequentials have been announced of £295m in 2024/25, largely due to higher spending on the NHS in England and a larger settlement for English local government. There is nothing additional on capital apart from small amounts from 2025/26. 

The Scottish Budget featured a number of difficult decisions by the Scottish Government, with a particularly tough settlement on the capital side. In many ways, this remains the case.

Nevertheless, the Scottish Government would be allowed to move these resource consequentials (or indeed other resource allocations) into the capital budget – just not the other way around. We’ll see whether it decides to do that for any of the additional funds.

The Fraser of Allander Institute is an independent research unit and part of the Department of Economics at the University of Strathclyde