Politics
Will Reeves' budget be bold enough?
Never has a budget been announced as comprehensively as this one, and since Norman Lamont's 1993 budget on the withdrawal of the European Exchange Rate Mechanism, no budget has been so gloomy, pessimistic and with increases in taxes.
The strategy appears to have been that if Rachel Reeves's tax increases and changes to borrowing rules to allow a larger deficit were followed virtually every day for a month, then no one would be surprised when they were revealed on Budget Day and there would be no repeat of Liz Truss's mini-budget collapse just two years ago.
Assuming there are tax increases equivalent to some 35-40 billion a year and a small increase in borrowing of a few tens of billions to finance new national infrastructure, there has never been much risk of he market collapse as in 2022. This was caused by a massive 80 billion increase in borrowing, more than half of which was to finance unfunded tax cuts. Nonetheless, tracking additional infrastructure borrowing and changing debt rules to accommodate it was a wise move to avoid any surprises in the market.
However, repeating for weeks about tax increases and spending black holes ensures that this will be seen as a massive tax hike budget, while the overall tax increase (as a share of income national) will probably be similar to that of Lamont in 1993. . This nickname was perhaps inevitable, but it is now a near certainty.
The big question is whether this is a big enough tax rise to tackle the huge NHS backlog of 7.6 million people on waiting lists, while avoiding the austerity in public services in the broad sense. If not, there will have to be another tax increase budget next year, otherwise the Starmer government will find itself in the worst of both worlds, grappling with both strong tax increases and a return to austerity.
Much depends on the growth rate over the next year, which will have a crucial influence on tax revenues. The OECD's latest projections of growth of 1.1 percent this year and 1.2 percent next year would likely keep the wolf out if realized, but they will be precarious.
The government's failure to reopen Boris Johnson's disastrous Brexit trade deal with the EU is a major limiting factor for growth. Brexit has already cost the economy some €140 billion, with economic output 6 percent lower than if the UK had remained in the EU, according to analysis by consultancy Cambridge Econometrics for the City Hall. The consequences of Brexit will deepen as red tape and trade barriers continue to sabotage EU imports and exports.
And then there is Trump. Is he serious about massive new tariffs on top of those already imposed on China to protect key industries? Does he really believe he can lower income taxes by creating a high tariff wall against Europe and Asia? If he wins and goes down this path, there will be little Starmer or Reeves can do to limit the damage to the global economy and UK growth.
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Sources 2/ https://www.prospectmagazine.co.uk/politics/the-insider/68399/will-reevess-budget-be-bold-enough The mention sources can contact us to remove/changing this article |
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