November 5, 2024
Tax

Labour’s Rachel Reeves unveils plan with tax rises expected


Reeves begins speaking

Reeves has begun delivering the 2024 budget, highlighting that it is the U.K.’s first-ever one presented by a woman.

“This government was given a mandate. To restore stability to our country, and to begin a decade of national renewal. To fix the foundations,” she said.

“Change must be felt. More [sterling] pounds in people’s pockets. A [National Health Service] that is there when you need it. An economy that is growing, creating wealth and opportunity for all, because that is the only way to improve living standards. And the only way to drive economic growth is to invest, invest, invest. There are no shortcuts.”

She added, “To deliver that investment we must restore economic stability and turn the page on the last 14 years.”

– Jenni Reid

FTSE 100 ticks lower

The U.K.’s FTSE 100 was seen ticking lower in the lead-up to Reeves’ budget announcement.

The index was down 0.44% to 8,183 by 11:42 a.m. London time, less than an hour before her speech.

Sterling also dipped 0.36% to trade at $1.2968.

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Reeves and the budget red box

Rachel Reeves, UK chancellor of the exchequer, outside 11 Downing Street ahead of presenting her budget to parliament in London, UK, on Wednesday, Oct. 30, 2024. 

Bloomberg | Bloomberg | Getty Images

Reeves is pictured on Downing Street, posing for the chancellor’s traditional red box photo less than an hour ahead of her budget announcement.

Business veteran calls for clarity on UK industrial strategy

Businesses need clarity on UK industrial strategy, veteran CEO says

Business veteran Warren East urged greater clarity on the U.K.’s much discussed industrial strategy in Wednesday’s budget, saying greater guidance on upskilling and infrastructure plans were particularly crucial to spur investment.

“So far the noises coming out of the government are encouraging to hear, but we’d like to hear some more detail,” East, who served as CEO of both Rolls-Royce and Arm, told CNBC’s “Squawk Box Europe” Wednesday.

“Over the next 12 months, if we can demonstrate really getting on and doing it, that will give business a lot of confidence. And business really is the vehicle through which all of this is going to be delivered,” added East, who is currently chair of air traffic control services organization, NATS Holdings.

— Karen Gilchrist

UK trade minister says budget to repair finances and provide reform

UK Trade minister Douglas Alexander answers questions during an interview in Geneva, on October 21, 2024. 

Fabrice Coffrini | Afp | Getty Images

U.K. Trade Minister Douglas Alexander said that Wednesday’s budget would repair the country’s finances and provide critical reform.

“This will be a budget that, if you like, repairs the fiscally impaired balance sheet we inherited, delivers economic stability, delivers economic investment, and delivers policy reform,” Alexander told CNBC’s Dan Murphy on Tuesday at the Future Investment Initiative in Riyadh, Saudi Arabia.

— Karen Gilchrist

Labour’s spending gap allegations ‘disingenuous,’ former investment minister says

UK tax hikes will fail to boost growth, former investment minister Dominic Johnson says

Former Conservative Investment Minister Dominic Johnson on Wednesday defended the Tory’s record in government, saying allegations of a black hole in the public finances were “disingenuous” and insisting that Reeves’ proposed tax hikes would do little to boost growth.

“I’m not really sure about these black holes,” he told “Squawk Box Europe,” noting that he did not trust estimates of a £22 billion — and growing — reported spending shortfall.

Johnson also criticised Labour for slamming the economy and said anticipated tax rises on international investors such as wealthy non-doms were scaring away potential growth drivers.

“They have to start being more responsible in how they talk about the economy and they have to be more thoughtful about how they genuinely provide growth —and it’s not going to come from tax hikes,” he said.

“Having the international investor base come to London and base themselves here is an enormous domestic advantage,” he said. “Even talking about frightening them away is a massive problem,” he added.

Johnson indicated, however, that Reeves’ proposed changes to the U.K.’s debt rule were “a very sensible idea,” conceding it was a measure he had been unable to enact while in office.

— Karen Gilchrist

UK gilts remain on edge

U.K. bond yields hovered at multi-month highs Wednesday morning as markets remain anxious about a proposed loosening of the country’s borrowing rules in Reeves’ budget announcement.

The yield on the benchmark 10-year gilt dipped less than a basis point at 4.312% by 7:30 a.m. London time, having reached their highest level since July during Tuesday’s session. Yields and prices move in opposite directions. One basis point equals 0.01%.

Traders are cautious on Reeves’ proposed changes and any increase in borrowing which could spark a sell-off, as it did in dramatic fashion with former Prime Minister Liz Truss’ unfunded tax cuts just over two years ago.

— Karen Gilchrist

UK minimum wage raised in boost for ‘working people’

Reeves said Tuesday that the U.K.’s minimum hourly wage for over 21-year-olds would rise by 6.7% to £12.21 ($15.87) from next April, in a signal of what could be further support measures for “working people” in Wednesday’s budget.

For younger workers aged 18 to 20 years old, the minimum pay rate will rise by 16% to £10 an hour, while for apprentices aged 16 to 17, the hourly rate will rise 18% to £7.55.

The increase is intended to keep the minimum adult wage at two-thirds of median earnings, after fresh data showed average earnings were higher than originally thought in 2023 and expected to grow further.

The government, which has vowed to protect “working people,” said the measures are expected to benefit more than 3 million workers.

— Karen Gilchrist

Tax rises, spending boost: What economists expect

Prime Minister Sir Keir Starmer during an ‘In Conversation’ event with Debbie Weinstein, managing Director Goole UK&I during the Labour Party Conference at the ACC Liverpool. 

Stefan Rousseau – Pa Images | Pa Images | Getty Images

After months of commentary from Labour officials, economists are eyeing billions of new public spending and tax rises ahead.

The party has already announced some of the areas it will gain extra tax revenue from, including changes to the rules on so-called “non-doms” whose permanent residence is outside of the U.K. for tax purposes; a higher energy profit levy; an increase in duties paid by overseas nationals buying U.K. residential property; and the introduction of value added tax (VAT) on private school fees.

Researchers at bank Barclays said in a note last week they expect between £20 billion ($26 billion) and £36 billion in additional spending for 2025 to 2026, offset by around £23 billion in extra revenue from tax increases — with higher employer contributions to National Insurance, a general taxation, playing a key role.

Citing government sources, the BBC has reported that the budget will both raise the percentage that employers pay in NI per worker, and also lower the rate at which they begin to pay it. This could raise a total £20 billion, according to economists.

UK budget to be driven by tax rises, Deloitte UK's Tickel says

Consultancy Deloitte highlights several unknowns to look out for in the budget, including on business rates, capital gains tax, inheritance tax and changes to taxes on the performance of carried interest payments in private equity.

Economists at Investec said in a note Monday that budget measures could include higher capital gains taxes on the sale of shares; closing or reducing the benefit from the “carried interest loophole;” potential changes to the pension system, such as a reduction in the lump sum amount that can be drawn down tax free; and the closure of some inheritance tax loopholes. Hikes to air passenger duties and bank corporation tax surcharges could also be raised, the said.

Analysts also say so-called “sin taxes” could be a Labour target, on areas such as gambling, vaping products and tobacco.

— Jenni Reid

UK fiscal rules set to change

Reeves last week confirmed she intends to change U.K. fiscal rules as part of the budget, enabling her to free up billions of pounds for investment.

Writing in The Financial Times, Reeves said the change “will make space for increased investment in the fabric of our economy, and ensure we don’t see the falls in public sector investment that were planned under the last government.”

Reeves did not specify exactly what the investment rule would change, but it has been reported the Treasury could target public sector net financial liabilities (PSNFL) in the U.K.’s measure of debt, rather than public sector net debt.

UK budget set to contain measures that will drag on economy: Growth Commission chair

The PSNFL measure takes in a wider account of the government’s balance sheet, including financial assets and liabilities, compared to public sector net debt.

The Institute for Fiscal Studies, an influential think tank, said on Sept. 30 that a change in the fiscal rules to target PSNFL would offer as much as £50 billion ($64.8 billion) of additional headroom for the government.

— Sam Meredith

‘Painful’ but no return to austerity: What Labour leaders have said about the budget

U.K. Prime Minister Keir Starmer and Finance Minister Rachel Reeves have delivered one message clearly in the run-up to the budget: pain now, for gain — in the form of economic growth — later.

Starmer has said his government will take “painful” decisions in order to close a hefty budgeting shortfall left by the previous administration, adding that those with the “broadest shoulders should bear the heavier burden.”

An early controversial decision has been to introduce means testing on winter fuel support payouts for pensioners.

His pledge not to raise taxes on “working people” has sparked debate over what defines that group. Subsequent comments by Labour figures have suggested this is a commitment not to raise income tax or national insurance contributions; but higher taxes for business owners or those who make income through shares or assets such as property have not been ruled out.

Britain’s Prime Minister Keir Starmer meets with Britain’s Chancellor of the Exchequer Rachel Reeves, days before the announcement on the first budget of the new Labour government, at Downing Street on October 28, 2024 in London, England. Starmer and Reeves are meeting ahead of the Budget on Wednesday.

Wpa Pool | Getty Images News | Getty Images

Reeves has vowed that there will be “no return to austerity,” referencing the economic program introduced by the Conservative Party in 2010 in the wake of the global financial crisis which involved deep cuts to public spending.

She has said this is because she will increase investment in areas including infrastructure and the energy transition.

All eyes are now on how Starmer and Reeves attempt to balance promises to boost public investment and increase funding to struggling areas such as the National Health Service, while also meeting their self-proclaimed “fiscal rules” to move the budget into balance and see debt fall as a share of GDP within five years.

Opportunity for the U.K. to take the bull by the horns: Canary Wharf Group CEO

‘Jittery’ bond market in focus after Truss 2022 crash

Bank of England in the City of London on 8th October 2024 in London, United Kingdom.

Mike Kemp | In Pictures | Getty Images

Close attention will be paid to the response of the U.K. bond market to Wednesday’s budget, which comes two years after a huge package of unfunded tax cuts announced by former Prime Minister Liz Truss caused yields to spike.

“If there’s one thing bond vigilantes hate more than an expansive budget it is a surprisingly expansive budget,” George Lagarias, chief economist at Forvis Mazars, said Tuesday — noting this explains why some upcoming changes have been leaked to the press in recent days.

“It is a challenge when a new Chancellor is presenting a budget. An even bigger one when it is on behalf of a completely new government, especially from a party known for fiscal expansion. The level of difficulty is further raised by the fact that bond markets have been especially jittery in the past few weeks, as traders find themselves in need to readjust their rate expectations for the U.S., in light of stronger growth data,” Lagarias said.

Shifting the accounting rules is a very old practice and might be less effective at a time when bond markets are looking carefully [at the Budget] … Ultimately, however, governments will need to figure out ways to significantly improve productivity if they are to maintain their citizens’ way of life,” Lagarias added.

Joe Maher, assistant economist at Capital Economics, said in a note Monday that the current macroeconomic backdrop was “much less conducive to a bond market panic than [under Truss] in September 2022,” when it was feared fiscal expansion would push inflation and interest rates higher.

“By contrast, we suspect that investors are now likely to be more tolerant of looser fiscal policy given inflation has fallen back to the Bank of England’s 2% inflation target and interest rates are likely to trend downwards,” Maher said.

Maher added that bond market nerves should also be eased by Labour’s repeated assurances on its fiscal prudence, the likely need for less of an increase in government borrowing than Truss’s plan would have required, and the fact that increased borrowing would be for public investment.

— Jenni Reid



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