2024 Autumn Budget predictions

As the 2024 Autumn Budget fast approaches, the first to be delivered by Chancellor of the Exchequer, Rachel Reeves, Dr Richard Whittle, University Fellow at the University of Salford’s Business School, shares his predictions.

The UK’s budget on the 30 October 2024, under the stewardship of Chancellor Rachel Reeves, will likely emphasise economic stability as a cornerstone of her policy strategy. Labour will want to show that the grown-ups are be back in the room. Undoubtedly, the new Chancellor will justifiably point to the chaos of the last years of the previous government as a major block to investment and confidence. The overriding message will be of sensible politics and prudent management, and what that can unleash. TLDR that won’t be enough. It has been clear that the new government is realising its lack of political experience and a need to change approach in the beginning of this parliament, will the Chancellor change message for this Budget? Can the turbulent start of the new government transform into the change that is desperately needed?

1. Striking the right balance between reining in public borrowing while addressing health, education and local government pressures

Reeves will likely lean on fiscal prudence, looking to rein in public borrowing while still keeping enough room to address immediate pressures in sectors such as health, education and local government. This approach could make her a steady hand compared to her predecessors, appealing to businesses seeking predictable economic conditions for investment. We can expect her to maintain a focus on long-term sustainability, with a fiscal plan that balances growth incentives and cautious spending, which could help attract more domestic and international investment. By projecting an aura of competence and continuity, she might successfully shore up the UK’s credibility in the financial markets. However, I’m not sure that this will work as intended.

The world looks on at a UK economy that lacks standard foundations, sooner or later the balancing act in the UK will collapse and the markets will begin to question the ability to pay debts. We saw a snapshot of this bringing down Liz Truss, I suspect that this first Budget is viewed as a turning point where a new government shores up the UK’s economic foundations. If the budget fails to reassure that this is happening, then questions about the UK’s longer term economic success will abound. Previously, too much borrowing sparked economic crisis, this time too little may.

Unfunded tax cuts may have spooked the markets before, ill workers and a chronically underfunded health and social care system may spook them in the future.

• Addressing widespread inequality in the UK economy

Austerity may be off the table in name, but Reeves’ options will be constrained by the need to manage a still-significant public debt. She may succeed in generating short-term economic stability and investment, but the critical question remains whether this will be sufficient to prepare the UK for the technological disruptions brought by artificial intelligence (AI), green transitions, and other emerging innovations. At the forefront of the Chancellor’s agenda should be addressing the rampant inequality in the UK economy, appeals by the Chancellor of a stable economy will not address this. Radical change may.

• Additional spending in infrastructure

We just may see a move to tweak some of the Chancellor’s fiscal rules to allow for additional spending, likely in spending in infrastructure. This would be welcome, the wish list of investment covers desperately needed hospitals, vital transport connectivity, upgrades to national utilities and investments in computing. Wish list implies these are luxuries, they are not.

Creaking infrastructures and long-term underinvestment in future technologies leave the UK at a huge disadvantage and its citizens needlessly suffering, whether in waiting for medical attention or simply trying to get to work on public transport (or indeed avoid potholes when travelling by car). There is much to fix, there is also much to envision. A repair job isn’t good enough, the new government and new Chancellor need to prepare the UK economy for a prosperous future, it needs to be an economy for all. The economic pain has been shared but has disproportionally impacted those with the least. If the economy is turned around, inequality must fall. This more than anything else will provide additional resilience into the system.

• Modest allocations towards digital and AI infrastructure

One of the most pressing concerns is the likelihood of insufficient investment in infrastructure, particularly in preparing the UK for the coming AI-driven transformations. The UK may benefit from significant technological disruption, with AI set to reshape everything from labour markets to public services. However, this benefit will only be realised if the economy is in a fit state to harness it.

Too many politicians seem to think that AI is a panacea which means that we can skip over long term underinvestment in people and infrastructure. This is simply not the case; a successful technological transition requires widespread digital skills and is shaped by connectivity. Reeves may make modest allocations toward digital and AI infrastructure, but I suspect that the scale of investment required will likely outstrip what the government is prepared to commit.

• New funding streams for technology and innovation but, will it be enough?

The UK’s technological readiness requires significant upgrades to both its digital infrastructure and education systems, to ensure that future workers are equipped with the necessary skills for an AI-driven economy.  Without serious investment in these areas, the UK risks falling behind other advanced economies, which are rapidly advancing their AI capabilities. The UK’s average broadband speed is 2.4 times slower than the United States and 2.7 times slower than in Singapore. In terms of fixed broadband, meaning broadband delivered by cable, the UK’s average speeds are below Uruguay and Slovenia.

State of the art fibre-optic broadband is only available to around 60% of locations, way below the European average, while the UK’s 5G connectivity is toward the bottom of the table. The UK’s average mobile download speed is 118 megabits per second, compared to Bulgaria’s 288Mbps.

While the Chancellor may promise reforms and new funding streams for technology and innovation, it’s unlikely that these will be transformative given the scale of fiscal restraint she is likely to impose.

• Some investment to alleviate NHS’ short-term pressures

There are also growing crises in health, local government and universities, which will likely demand significant attention in the upcoming Budget. The NHS, already overburdened by workforce shortages and rising costs, will likely see some targeted investment to alleviate short-term pressures. However, without evidence based, strategic, systemic and compassionate reforms, the health system will continue to face long-term sustainability challenges. Incremental increases in funding may stave off the worst effects but won’t address the core problems plaguing the system.

• Moderate relief packages or additional borrowing powers for local governments

Similarly, local governments are buckling under the weight of years of austerity, with many councils warning of looming financial collapse. Reeves may introduce modest relief packages or additional borrowing powers, but these are likely to be stopgap measures rather than comprehensive solutions.

Local Government is symptomatic of the wider economy, it has been broken by long-term budget cuts, under investment and political apathy. This process has left it precarious and unable to respond to the technological revolution happening around it. A well-funded system would look much different now and be sensibly and sustainably using technology to deliver a better service at a lower cost.

Without the damaging austerity impacted on it, the sector would likely now be looking like the lower cost increased efficiency service budget cuts were designed to promote. Instead, we have an asset stripped sector, facing further cuts and incorporating technology to simply continue to deliver the same reduced service for even less. Local government is doing a superb job with its meagre resources, it shouldn’t be in this position. The sector, and the people it serves deserve better. I however suspect that could be said of many aspects of the UK economy.

• Shoring up university funding

Universities, meanwhile, are grappling with financial constraints worsened by inflation, and a significant decline in international students. Research funding remains under threat, and with the growing importance of AI, a lack of investment in higher education could suppress stable sustainable innovation and skills development at a time when the UK most needs them. Rachel Reeves may aim to shore up university funding but, once again, it’s unlikely to be at the scale required to address the real challenges facing the sector.

• Delivering economic stability and building confidence among investors

The new Chancellor’s first Budget will likely focus on delivering economic stability and building confidence among investors. However, this stability may come at the expense of significant infrastructure investment, particularly in areas crucial to the UK’s technological future. We will likely tweak the system and get more, will it be enough?

The country’s health, local government and higher education sectors are also likely to continue struggling under a system of modest reforms and insufficient long-term support. Without bold moves on infrastructure and key public sectors, the UK risks being underprepared and underpowered for the coming technological and economic changes.