PA Consulting comments on the Spring budget

Our experts comment on the Chancellor's Spring Budget and the impact this will have in a number of key areas.

Jonathan Gillham, chief economist at PA Consulting, says:

The OBR’s forecast suggests that inflation will roughly halve over the next 12 months and the economy will narrowly avoid recession. This is a considerably more optimistic position from that set out in November 2022. Overall, it’s given the Chancellor roughly an extra £25 billion to play with through reduced borrowing.

The Chancellor has spent around two-thirds of his fiscal windfall and emphasised the need for greater fiscal buffers given the mounting scale of global economic risks. Attempts to boost investment should see a gain to GDP of around 0.2% by 2027-2028 and policies to encourage workers back into the labour market should boost labour supply by around 110,000 workers over the same period.

While we had not expected announcements on public sector pay in this Budget – it would be unusual to do so while negotiations are continuing – markets will be closely watching the Government’s strategy. In light of this budget, fiscal headroom is still minimal and there is still considerable economic risk from the war in Ukraine and supply-side bottlenecks. A responsible fiscal plan to address these issues remains critical.

Shaun Delaney, global head of public sector at PA Consulting, says:

The government has clearly set out its intent to make change happen. The key question now is how quickly we can put this into reality. The challenge ahead is to implement the budget initiatives at pace, so that the benefits and value will be realised by communities across the UK. To drive early benefits from these initiatives the government should now focus on:

Delivering at pace. By relooking at the way the government can decrease the time to delivery and remove some of the more bureaucratic steps that can slow down effective initiatives becoming a reality. One solution is to empower local bodies to make quicker decisions on the implementation of the new investment zone policy.

Coherence across the policy initiatives. The government needs to consider all areas of activity to identify where one policy can positively reinforce and amplify the benefits of another. The government could, for example, consider how it can combine workforce reform agenda within some of the business support initiatives.

Adopting an R&D mindset to delivery of the budget announcements. The government needs to be bold in assessing what is working, and what isn’t. It needs to think about how it can learn quickly and take tough decisions about those initiatives that it needs to accelerate because they are showing early benefit, as well as closing down those initiatives that are failing to realise on the potential

Stephen Farrington-Bell, health economics expert at PA Consulting, says:

Getting the economy growing at pace. A suite of measures were announced to support the re-entry of 2.5 million people that are currently in ill health or disabled back into work. The health care system and NHS will play a significant role in providing the mental health services, the musculoskeletal services, and additional healthcare services the support they need to get individuals back into work.

Changes to pension rules will make a positive impact to the make-up of the workforce. Both the annual allowance and lifetime cap will be abolished. Pension rules have been affecting senior NHS staff, particularly consultants, leading to people retiring early and declining extra work. Lifting these restrictions will help incentivise senior clinicians back into the NHS and alleviate some of the workforce issues that the system is currently facing.

New drug licensing will help accelerate new drugs and treatments. Accelerating approval for drugs is a welcome step in attracting inward life sciences investment and innovative clinical trials, supporting the pipeline of new drugs and treatments. Ultimately, this will mean quicker access to new drugs and treatments for British patients.

Elaine Whyte, defence expert at PA Consulting, says:

The refreshed Integrated Review (IR) is both an opportunity and a challenge for defence enterprise. For the full value of this investment to be unlocked, there are three key things that need to now happen:

A portfolio approach is needed to enable an enduring funding and approvals approach. This requires not just a change in processes but also a change to culture and behaviours so that the organisation becomes comfortable with undefined requirements.

Having this enduring approach gives a clearer demand signal to industry that allows them to confidently invest in skills and R&D. To meet today’s increase in demand, industry needs to increase its capacity to build and deliver capability.

To integrate capability into the Enterprise at pace, communication channels need to be shortened and the purpose needs to be understood. All key players need to work together to navigate evolving requirements and be realistic about delivery. For example the UK Government Ventilator Challenge saw all key players in it together, united on a clear purpose. This allowed for rapid development time and ensured everyone in the UK who needed a ventilator, got one during the coronavirus pandemic.