What this Budget tells us

The Budget and the spending review gave the clearest indication yet of what the post-Covid government might look like. During the height of the pandemic, government spending exceeded 50 per cent of the economy for the first time since 1945-46. Even this year, public spending will be higher than when Denis Healey had to seek a bailout from the International Monetary Fund in 1976. Such spending has long-lasting consequences. The tax burden is now at its highest level in terms of GDP since the 1950s and is likely to stay high for some time.

It will take quite an effort to return the government to its pre-pandemic size. The risk is that the UK’s ageing population will make this task particularly difficult. The National Insurance increase to fund more spending on the NHS and social care was a worrying sign of the way things could go. It is all too easy to see how the UK could get stuck with high taxes with spending concentrated on healthcare rather than on productive investment.