Ninety One’s Sahil Mahtani responds to the UK Budget

Commenting on the Autumn Budget, Sahil Mahtani, Strategist at Ninety One, said:

“The interesting thing about this budget is not what the Chancellor has done with the extra fiscal room of multiple tens of billions the UK has gained since last March. All that has been covered ad nauseam by the papers and the UK economists. The real question is what the shape of state looks like in five years time, and here the answer is coming into view. Three observations:

  1. Health and social care spending will continue to leave little room for anything else. Health accounts for about 40% of day-to-day spending–20 years ago it was only about a quarter. That is only likely to get larger. Since 2010, every single ministerial department save three has seen their budgets shrink: the Department for Health and Social Care, the Department for International Development, and the tiny Cabinet Office. After the pandemic, health spending is likely to grow not shrink, leaving little room for everything else.
  2. The Treasury is not allocating enough money for the looming Green transition. Capex underspending has been a chronic issue for the Treasury, even as it acknowledges that GBP55bn per year in investment is needed to get to net zero. The Treasury allocated £450bn over three years for heat pumps, but that’s the same amount the Treasury is allocating to its Winter Hardship Fund this winter. We are consuming far too much at the expense of future generations. Focusing on investment is the only way to raise potential growth in the economy.
  3. Having said that, and despite the energy and supply disruptions, the economy is clearly going to be healthier than expected in the coming years with the OBR having reduced its scarring/’persistent economic damage’ estimates from 3% last March to 2% now. We are now the fastest growing country in the G7 this year, with the OBR projecting growth of 6.5% and a further 6% in 2022. We have a fighting chance to bring down the eye-watering budget deficits. In this regard, the Chancellor’s new fiscal rules are welcome. They are a cornerstone of the need to bring down net debt levels, and the OBR’s projections see a budget deficit of just 1.5% of GDP at the end of the forecast horizon. Falling debt projections will be a sign the UK economy is recovering and prospering.”

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