Government faces “unavoidable choice” on fiscal headroom, warns pre-Budget analysis

Dods Political Intelligence has today published a report: “The Pre-Budget Briefing: Sector-by-Sector Analysis”, providing context and analysis on the key factors shaping the upcoming Budget.

The report, written by Dods Political Intelligence, and edited by Jamie Selig, Political Consultant for the Economy and Financial Services, identifies that:

• The Government’s fiscal framework has become self-defeating – with headroom repeatedly wiped out, the current approach perpetuates tax uncertainty that undermines the very business confidence needed for growth.
• The Government faces an unavoidable choice – build a larger fiscal buffer through additional revenue-raising now, or risk ongoing cycles of tax uncertainty and policy firefighting.
• Financial services ambitions require fiscal credibility – regulatory reform and investment initiatives cannot compensate for the damage caused by persistent uncertainty over future taxation.
• Breaking the cycle matters more than any individual measure – ensuring this Budget provides clarity for the Parliament would represent genuine change from the pattern of the past 18 months.

Commenting on the publication of the report, Jamie Selig, Political Consultant for the Economy and Financial Services, said:

“At the Budget, the Government will need to act decisively to restore tax certainty. Anything less risks giving business the cold shoulder — a mistake it cannot afford given its growth ambitions.

Yet the Chancellor faces a delicate balancing act. Decisions over how much headroom to carry are tough, undeniably political, and a classic case of trade-offs. More headroom provides a larger buffer against external shocks; less frees up cash for actual spending. 

Topping up headroom would require raising additional revenue – more than is necessary under the current fiscal framework. But, failing to do so risks running the same race and expecting a different finish line.

Effective fiscal frameworks are supposed to provide a cushion against volatility. But with headroom repeatedly wiped out, the current approach has become self-defeating. Replacing the ‘magic’ £9.9 billion benchmark, barely a third of the historical average since 2010, is now essential to restoring credibility.

Ensuring tax certainty at this Budget will matter as much as any new headline policy. The real test isn’t whether the Chancellor can balance the books this autumn, but whether she can build enough headroom so that we’re not having this same conversation in the spring. For a government elected on “change”, that would itself be quite the change.”

The full report can be viewed here.