Now that the dreaded Spring Statement is over and the cuts we expected Chancellor Rachel Reeves to make have been announced, we thought it would be interesting to simulate how changes to taxes and government spending affect the deficit or black hole in the budget that Reeves is trying to patch.
The UK faces difficult taxation and spending choices at the moment. With public sector borrowing at £10.7 billion in February alone and a growing national debt, the government is aiming balance deficit reduction against economic growth and public services.
Our Deficit Reduction Simulator here allows you to explore these tradeoffs firsthand. By adjusting tax rates, departmental spending, welfare eligibility, and borrowing, you can see how different policy combinations might affect the country's outlook.
The UK's annual deficit—the gap between government spending and revenue—currently stands at approximately £128 billion. This persistent shortfall adds to the national debt, which has reached about £2.4 trillion, or roughly 100% of GDP!.
The Chancellor has signaled her commitment to fiscal discipline, but with a focus on spending cuts rather than tax increases. The government aims to save £5 billion annually by 2030 through stricter welfare eligibility tests and departmental budget reductions.
Our simulator demonstrates how fiscal policy changes ripple through the economy:
- Tax Adjustments: Raising income tax, corporation tax, or VAT increases revenue but may dampen economic activity. Our model accounts for diminishing returns—tax increases beyond certain thresholds yield progressively less revenue as behavior changes.
- Spending Cuts: Reducing departmental budgets directly lowers the deficit but can affect public services. The simulator shows how cuts to health, education, defense, and welfare translate to fiscal savings.
- Welfare Reform: Tightening eligibility for benefits like Personal Independence Payment (PIP) reduces spending but impacts vulnerable populations. The simulator quantifies these savings while highlighting the human dimension of such policies.
- Borrowing Rates: Changing government borrowing affects both immediate finances and long-term debt sustainability. Lower borrowing reduces the deficit but may constrain economic stimulus.
Fiscal decisions have broader economic implications. Tax increases typically slow growth more than equivalent spending cuts, but cuts to high-multiplier areas like infrastructure can significantly impact economic output.
Our simulator incorporates simplified economic multipliers to estimate how your policy choices might affect GDP growth and the debt-to-GDP ratio—a key indicator of fiscal sustainability.
The ideal policy mix depends on your priorities. Those focused on rapid deficit reduction might accept slower growth and service reductions. Others might prioritise protecting public services even at the cost of higher borrowing.
By experimenting with different scenarios, you can better understand the constraints facing the Chancellor and the inevitable tradeoffs involved in fiscal policy.
Behind these numbers lie real impacts on businesses, public services, and households across the UK.
