Goldman Sachs analysts have forecast Chancellor Rachel Reeves will hike current government spending by £30 billion annually in next week’s Budget.
This would take spending to 0.9% of UK gross domestic product (GDP) by 2029, as Reeves looks to prevent real-terms cuts to government budgets.
Tax increases worth £25 billion will likely be unveiled in the meantime, according to Goldman, equating to 0.75% of GDP in 2029.
“The government could raise revenues through reforms to capital gains and inheritance tax, removing the national insurance exemption on employer pension contributions, and extending the freeze on personal income tax thresholds,” Goldman said.
Reeves had firmed up plans to change UK fiscal rules on Thursday, which she said would ensure day-to-day spending equated to government revenues and bring down debt against GDP.
Goldman noted Reeves was unlikely to use the full £50 billion headroom unlocked through the tweaks though, in order to prevent market turmoil similar to that seen under Liz Truss.
“Nonetheless, with the debt rule unlikely to bind, there is considerable uncertainty around exactly how much public investment could increase,” Goldman added.
Either way, Goldman suggested spending increases “would be phased in gradually over several years,” leaving “a limited impact on the current deficit at the five-year horizon”.