Chancellor John Healey has been accused of relying on "made up numbers" to meet fiscal targets, with a leading economist asserting that the figures are unrealistic and already out of date. The Office for Budget Responsibility (OBR) has acknowledged that its most recent projections for public finances do not fully account for the current surge in global oil and gas prices, suggesting the outlook is worse than presented.
Healey's "headroom," a buffer against fiscal rules, has reportedly narrowed from £24 billion to £15 billion, impacted by inflation and growth concerns, partly attributed to the ongoing conflict in Iran. The Chancellor defended this by stating, "That is what a buffer is for: use it when you need it, rebuild it when you can."
However, the projected improvement in public finances is contingent on significant cuts to "unprotected" spending areas, such as prisons and policing, over the next three years. These areas are expected to face real-terms cuts of 2.6 percent annually until a government spending review next year. This assumption has drawn sharp criticism.
Paul Johnson, former director of the Institute for Fiscal Studies and chief economist at the 2030 Prosperity Alliance, described the approach as "myopia on steroids." He stated that the claim of adhering to fiscal rules is based on "almost certainly fanciful 'plans' to slash many areas of public service spending." Johnson added, "The numbers add up because the numbers were made up. If business and the country need some certainty and stability to help with growth, this Budget did not provide it."
The OBR noted that the energy market figures used in the budget were from mid-August, before the most recent price increases. OBR economist David Miles pointed out that oil prices have risen 70 percent and gas prices have tripled since the conflict began, compared to pre-war levels. This divergence suggests the forecasts are "somewhat optimistic" and could be closer to a "severe" scenario that would reduce the headroom by £17 billion.
Sanjay Raja, chief UK economist at Deutsche Bank, anticipates significant spending decisions in the new year, including funding for a national care service and increased defense spending. Raja estimates these could create a "fiscal hole" of up to £40 billion, potentially raising questions about the credibility of projected fiscal tightening. He concluded, "For now, the Chancellor has bought himself more time, but the UK is walking an increasingly fine fiscal line, with the harder choices still to come."