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UK Autumn Statement 2022: Fiscal Consolidation Largely Pushed Back for Later Years

The Autumn Statement, presented on 17 November 2022, proposes a combination of tax increases and spending cuts as well as targeted fiscal support in the near term to help households and businesses cushion the impact from high inflation. While it might be broadly balanced, some tax increases will be frontloaded while spending cuts will be backloaded. This all means that fiscal consolidation has been largely pushed back for later years, with public debt expected to increase in the near term. In this commentary, DBRS Morningstar takes a look at the main fiscal implications of the Autumn Statement, the updated fiscal targets and the risks to the fiscal outlook.

Key Highlights
-- Fiscal support to help cushion high inflation, together with higher interest rates, will keep the fiscal deficit relatively large in the next two years.
-- In DBRS Morningstar's view, backloading fiscal consolidation - with the debt ratio forecast to fall only in five years' time - increases uncertainty on the fiscal path, given potential policy changes ahead of the next general election and risks to the economic outlook.
-- The new fiscal rules provide the government with some flexibility. While there appears to be headroom to meet the debt and deficit targets, the government's commitment will be key.

“Risks to the fiscal outlook are significant, with the fiscal path subject to a considerable degree of uncertainty,” said Adriana Alvarado, Senior Vice President in the Global Sovereign Ratings Group. “The uncertainty over fiscal consolidation could increase in view of the electoral cycle.”