Policy costings
During the run-up to Budgets and other policy statements, we subject the Government’s draft costings of tax and spending measures to detailed challenge and scrutiny. We then state in the Economic and fiscal outlook and the Treasury’s costing documents whether we endorse the costings that the Government finally publishes as reasonable central estimates. Our approach to the costings process, including the roles of the Treasury and other relevant departments, and how we incorporate the impact of policy measures in our forecasts is described in Briefing Paper No.6: Policy costings and our forecast. We have also written a small number of working papers on evaluating costings and forestalling.
At each fiscal event, a chapter of our Economic and fiscal outlook presents our analysis of the policy measures that the Government has announced since our previous forecast. This is accompanied by our online scorecard, which breaks down the tax and spending components of each measure. We also publish three policy databases that respectively show: a detailed tax and spending breakdown for every policy measure (going back to 1970 for tax measures and 2010 for spending measures), our subjective uncertainty ratings for each costing (going back to 2014), and a policy risks database that presents policy ambitions, whose costings have yet to impact our central forecast.
Economic impact of policy measures
Costings capture the direct effects of policy measures on our fiscal forecast, but policies can also have ‘indirect effects’ if they affect our economy forecast. Each Economic and fiscal outlook therefore normally includes a box in our economy chapter which explains how changes to fiscal policy have affected our economy forecast, thereby generating these indirect effects – for instance, by affecting our forecast for aggregate demand via fiscal multipliers. Fiscal policy can also affect our forecasts for potential output, as we explained in Briefing paper No.8: Forecasting potential output – the supply side of the economy.
Our Autumn Statement 2023 economy forecast, as described in Chapter 2 of our Economic and fiscal outlook, incorporated the impact of the Chancellor’s policies. As usual, we summarised these effects in Box 2.1 on the economic impact of policy measures and also provided an assessment of recent business tax policy measures in Box 2.4. Since then we have published two articles with further details of the macroeconomic impacts of two of the policy measures announced in that fiscal event: the cuts to National Insurance Contributions and the policy to enable full expensing of all qualifying plant and machinery investments.