UK Planning Reforms Throw Reeves a Lifeline as Growth Upgraded

(Bloomberg) -- Chancellor of the Exchequer Rachel Reeves was handed an unexpected growth boost on Wednesday as her fiscal watchdog recognized the positive impact of planning reforms she has promised to deliver.

Despite halving its growth forecast for this year to 1%, the Office for Budget Responsibility said the economy would be 0.2% larger in 2029 than it projected in the October budget. The improvement reflected the “biggest positive growth impact that the OBR have ever reflected in their forecast for a policy with no fiscal cost,” Reeves said as she unveiled her Spring Statement.

Labour’s planning reforms will deliver an extra 170,000 new homes over the parliament and permanently boost the level of GDP by the end of the parliament by 0.2%, and by 0.4% after 10 years. 

The improved growth outlook helped Reeves offset the damage to the public finances caused largely by an increase in borrowing costs. She restored in full the £9.9 billion of headroom against her main fiscal rule that she had at the October budget. To do so, she found £14 billion ($18.1 billion) by cutting billions from welfare and public services and announcing modest additional tax rises, largely by cracking down on avoidance. 

“These fiscal rules are non-negotiable,” Reeves said. “They are the embodiment of this government’s unwavering commitment to bring stability to our economy.” 

Although the outlook was better than expected, the cuts to benefits and public services to restore her buffer will dismay Labour Members of Parliament who fear the party’s traditional priorities are being betrayed. 

Reeves pointed out that living standards will rise over the parliament. “Compared to the forecast at the final budget delivered by the party opposite, and after taking account of inflation, the OBR say today that households will be on average over £500 a year better off under this government,” she said.  

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