Budget Blues The Sequel
Common Sense Policy Group
published 3 December 2025 by Anna Frances Thew
In June, the Common Sense Policy Group outlined a set of common sense economic principles in response to the spending review to guide the Government away from short-termism, outdated orthodoxy, and stagnating growth. Rachel Reeves’ first budget as Chancellor has delivered little to no real change in direction, just more tinkering around the edges of the status quo. Once again, we see the Government clinging to a failing commitment to short-term deficit reduction that has repeatedly failed to deliver long-term economic and social wellbeing.
This budget demonstrates how self-imposed fiscal constraints and the pursuit of market credibility have become more important than public wellbeing. We are presiding over underinvestment in our public services, stagnant productivity, and widening inequality. There is no credible path out of our current crises that relies on the same failed orthodoxy of managed decline.
The Autumn Budget was an opportunity to signal bold, strategic investment and a genuine plan for national renewal. A broken economy needs a bold response. Instead, we got more of the same.
Addressing the weaknesses
The Government’s fiscal restraint stands in contrast with its ambition for growth. We live in a highly unequal society short of functioning industry, infrastructure and public services, where too many are poor, badly housed, sick and struggling. Productivity has been exceptionally weak since the financial crisis. From 1971 to 2009, output per hour grew by an average of 2% annually, but since 2010, growth has slowed to just 0.4% per year and real income growth is expected to stagnate by 2027–28. Underlying causes include chronic underinvestment in both public and business sectors, inadequate transport infrastructure, a relatively low-skilled workforce, an inadequate policy framework for encouraging innovation, and relatively high inequality. The government has many levers it could use to pull us out of this mess but right now, but many of them seem to be working against us.
Fiscal rules and forecasting woes
The Government’s economic plans are informed by the modelling predictions of the Office for Budget Responsibility (OBR). The OBR has been criticised from across the political spectrum for its inaccurate forecasting and assumptions that constrain the policies available to governments, with critics within Labour calling this a ‘doom loop’ that is making us all poorer. The OBR assumes that the public spending has only a small, short-term impact on the economy [1]. It limits the impact of spending to five years and applies very low spending multipliers [2], assumptions that many economists consider unrealistic.
Our common sense spending multipliers
Our common sense spending multipliers take into account supply and demand dynamics over the longer term, recognising that public spending not only transforms population wellbeing but also drives significant productivity gains, fuelling economic growth and strengthening public finances.
Our revised spending multiplier analysis, published in ‘Closing the Gap: The case for a public investment target’ shows how much economic growth can be achieved through additional public spending. Our analysis is based on a dataset of 25 OECD countries from 1996 to 2019, reflecting real data over a long period across comparable economies.
We find that:
- £1 billion in capital spending (infrastructure, R&D, schools, hospitals) delivers £3.42 billion of additional GDP after 10 years, rising to £3.73 billion after 15 years due to increased growth rates
- £1 billion in current spending (public sector salaries, social security) delivers £1.14 billion in GDP after 5 years
These are significantly higher than the standard multipliers typically used by the OBR and suggest a much longer-lasting effect on GDP growth.
It’s common sense. Public spending on improving transport, advanced manufacturing capabilities, health and education results in the ability to produce more. It’s also common sense that cutting public spending simply transfers much higher costs downstream through deteriorating health, increased crime, and other negative outcomes, while causing severe harm to people’s lives. Hundreds of billions of pounds of cuts to public spending since the 2010s have caused devastating and compounding losses for the economy and the tax base.
Using our multipliers, an additional £77 billion in tax receipts would be generated by proper public investment policies. Alongside reprogramming the tax system to ensure that productive work is rewarded, these multiplier effects could cover a full programme of national renewal to rebuild public services and reduce poverty and inequality to historic lows with £79 billion left over.
A common sense alternative
The status quo so far has delivered little to no growth at all. Evidence shows that growth remains low and unsustainable if inequality is not addressed. It is therefore essential to treat security of income, reduction in inequality, and elimination of poverty as the key means of improving outcomes. Boosting the incomes of the lowest income households through public spending and redistributing wealth of the wealthiest to those who need it so that they can spend it ensures that resources are directed towards strengthening demand and stimulating economic growth.
Our common sense approach to a new economy, focused on resilience, fair taxation, and asking the wealthiest to contribute their share to protect public services, reduce inequality, and safeguard the economy earned a national approval rating of 73/100 in our Act Now polling. Labour must present a bold, common sense alternative that addresses people’s material insecurity first offering hope for a fairer, more secure future.
[1] Impact as measured by Gross Domestic Product (GDP)
[2] A spending multiplier is an economic concept that measures how much total economic output (GDP) changes in response to a change in government spending.
For all media enquiries please contact Anna Thew at anna.thew@northumbria.ac.uk