Latest news with #UKbudget
Yahoo
08-07-2025
- Business
- Yahoo
UK economy faces severe risks as Trump tariffs threaten annual £10bn bill
The UK faces a £10bn blow to the public finances each year from Donald Trump's tariff regime, according to the official budget watchdog. The Office for Budget Responsibility (OBR) warned that Trump's trade policies posed a 'significant fiscal risk' to the UK. A 20-percentage-point increase in US tariffs could widen the UK's budget deficit by around £10bn a year, equating to roughly 0.3% of GDP. The OBR added that the economic fallout would be 'similar' even if other countries were to retaliate against the US measures. The increased tariff revenues would be offset by the broader negative impact on the global economy. US effective tariff rates are "now at their highest level since the Second World War,' the report said, warning that the tariff regime has contributed to the UK's rising debt, alongside the impacts of the pandemic and Russia's invasion of Ukraine. Despite the US-UK trade pact agreed in May, it warned: 'With ongoing trade negotiations and legal challenges, the future path of US trade policy remains highly uncertain.' The report also highlighted the growing challenge of UK public debt, exacerbated by the recent reversal of planned tax hikes and spending cuts, including those in the welfare bill and winter fuel allowance. Read more: M&S boss reveals two major UK companies hit by cyberattacks but didn't report them The report said: 'Efforts to put the UK's public finances on a more sustainable footing have met with only limited and temporary success in recent years in the aftermath of the shocks, debt has also continued to rise and borrowing remained elevated because governments have reversed plans to consolidate the public finances. 'Planned tax rises have been reversed, and, more significantly, planned spending reductions have been abandoned.' Looking to the long term, the OBR predicted that UK public debt could surge to 270% of GDP by the 2070s, marking a shift in fiscal sustainability. The report pointed out that the UK now holds the sixth-highest debt, the fifth-highest deficit, and the third-highest borrowing costs among 36 advanced economies The fiscal watchdog added that the UK's ability to respond to future shock has been substantially eroded. The OBR wrote in its report: "Efforts to put the UK's public finances on a sustainable footing after a series of global shocks have met with only limited and temporary success in recent years, leaving the UK with the sixth-highest debt, fifth-highest deficit, and third-highest borrowing costs among 36 advanced economies. "Against this more vulnerable backdrop, the risks to the fiscal outlook are mounting, including: the sustainability of state and private pensions and the sector's demand for government debt; risks to assets and liabilities on the public balance sheet and the government's new net financial liabilities target; and the combined costs of climate damage and the net zero transition." The OBR also cited rising pension and healthcare costs, saying: "Over the long term, the demographic pressures of an ageing population and rising costs of healthcare and other age-related expenditures are still, on current policy settings, projected to push borrowing above 20% and debt above 270% of GDP by the early 2070s." The report also focused on the rising costs of the state pension, particularly under the so-called triple lock, which ensures that pensions increase each year by the highest of the following three measures: CPI inflation, average earnings growth, or 2.5%. According to the OBR, the triple lock has already cost nearly three times more than initially expected. 'The triple lock system is expected to cost £15.5bn annually by 2029-30,' the report stated, adding that the structure of the UK's pension system and demographic pressures from an ageing population would only exacerbate the fiscal burden in the coming decades. Read more: FTSE 100 LIVE: London stocks higher as Trump pushes tariff deadline to 1 August Also, the UK's pensions bill is set to keep rising sharply, the OBR said: "Spending on the state pension has risen steadily over the past eight decades. It rose from around 2% of GDP in the mid-20th century to around 5% of GDP (£138bn) today, and is estimated to rise further to 7.7% of GDP by the early 2070s in our central long-term projection." The report warned that rising defence spending commitments would pose an additional risk to the UK's public finances. The UK government has committed to meeting Nato's new target of spending 3.5% of GDP on core defence by 2035, a move that will add £38.6bn to government spending. Meanwhile, the yield on long-term UK government bonds (gilts) has has climbed close to record highs, raising the cost for the Treasury to service its growing in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Telegraph
06-07-2025
- Business
- Telegraph
A wealth tax will only make the Chancellor's problems worse
Rachel Reeves's tears during Prime Minister's Questions pushed up the 10-year UK gilt yield from 4.51pc to 4.66pc in a matter of minutes. Whatever the explanation for the Chancellor's House of Commons meltdown, global investors weren't impressed – imposing a £1bn-plus increase in the annual interest bill on the UK's £2.6 trillion stock of national debt Ahead of Wednesday's parliamentary snuffles, there had clearly been tensions between Reeves and Prime Minister Keir Starmer. The Chancellor and Welfare Secretary Liz Kendall have spent weeks trying to sell reforms to Labour MPs, designed to save around £5bn a year in sickness and disability welfare payments by 2030. No one was talking about actually cutting the welfare bill under this heading. Spending on sickness and disability benefits was set to rise from £65bn in 2023-24 to £101bn by 2029-30, according to the Office for Budget Responsibility (OBR). This huge 55pc increase is driven by an expected surge in Personal Independence Payments (Pip) to some 4.2m working-age adults, around one in eight of the work force. The Labour leadership's attempts to tighten benefit eligibility rules were designed to lower that annual bill to £96bn by 2030 – still a huge 48pc increase from when Labour took office last July. But Starmer bottled even these feeble reforms. Faced with Labour backbenchers outraged at any slowdown in the growth of state largesse, the Prime Minister caved – blowing another £5bn hole in Reeves's budget. Labour insiders now admit the party's attempted welfare reform will save 'more or less no money'.
Yahoo
15-06-2025
- Business
- Yahoo
Reeves braced for OBR forecasts to blow £20bn hole in tax and spending plans
Rachel Reeves is braced for revised forecasts by the Office for Budget Responsibility (OBR) to blow a £20bn hole in her tax and spending plans before the autumn budget. Even without changing the totals the chancellor set out in her spending review on Wednesday, a weaker forecast from the the Treasury's independent watchdog could force her to find significantly more money at the budget to meet her 'non-negotiable' fiscal rules. Reeves has said repeatedly that flexing her fiscal rules – designed to provide certainty over UK public finances – is not an option even if the economic outlook deteriorates. At her spring statement, she left herself on course to meet those rules with less than £10bn of headroom to spare, on a total budget for day-to-day spending of more than £1.3tn. Amid trepidation at the Treasury, the OBR has kicked off its annual summer review of the 'supply side' of the economy – including productivity, which it has consistently overestimated. Sources with knowledge of the OBR's thinking told the Guardian that the watchdog was 'uncomfortable', with the fact its current forecast for productivity growth was more positive than the consensus from other economic forecasters, and wanted to 'rein it in'. Productivity is one of the key determinants of economic growth, and revising it down would have a significant knock on effect on the OBR's forecasts for gross domestic product. The consultancy Oxford Economics estimates that moving the productivity forecast back in line with the average independent projection, would knock 1.4% off forecast GDP at the end of the OBR's five-year forecast period. That would force Reeves to increase taxes or cut spending by an eye-watering £20bn, to meet her fiscal rules and maintain her slim £10bn of headroom. That would be roughly equivalent to raising both the main and higher rates of income tax by 2p. A more cautious approach, taking the middle path between two alternative 'scenarios' the OBR set out in its March economic and financial outlook, could still force the chancellor to make a £12bn correction. The OBR could send an early signal of its intention to revisit its productivity outlook as soon as 1 July, in its regular forecast evaluation report. Andy King, a former member of the OBR's budget responsibility committee, now at the consultancy Flint Global, said: 'The reason why anyone in the Treasury who cares about this will be worried, is that the OBR is currently more optimistic than everyone else. 'What can happen next? Either everyone else thinks, 'We're too pessimistic'; or the OBR thinks, 'We are too far away from the pack, there's been more bad news than good since March, we should revise down.' I think that's the expectation for many.' The Treasury is likely to point the OBR to policies it hopes will be positive for productivity growth in the long term, including infrastructure investment, though the scale of this was already known before the OBR's last forecast in March. Alongside weaker productivity, slower net migration as a result of the government's recent white paper could also prompt the OBR to be more pessimistic. James Smith an economist at ING, said: 'Further downgrades to trend productivity growth projections, as well as net migration, mean the chancellor is likely in the red, before even considering the mounting pressures on the public purse. 'The overall shortfall may amount to at least £20bn, and that means tax rises are highly likely.' Adrian Pabst, the deputy director of the National Institute of Economic and Social Research, said the prospect of another significant forecast revision underlined the current instability of tax and spend policy. 'We're in this vicious circle where we've got these fiscal rules, then the OBR have to take a view, because that's their remit, that's their mandate; and then we're constantly speculating about what is going to happen at the next fiscal event,' he said, adding: 'It's not a good place for fiscal policy to be.' In a recent speech, Reeves said: 'Strong and transparent fiscal rules are an indispensable safeguard for working people – and that is why my rules are non-negotiable.' The Treasury declined to comment on the prospect of an OBR growth downgrade but underlined Reeves's determination to stick to her fiscal rules. The OBR declined to comment.
The Guardian
15-06-2025
- Business
- The Guardian
Reeves braced for OBR forecasts to blow £20bn hole in tax and spending plans
Rachel Reeves is braced for revised forecasts by the Office for Budget Responsibility (OBR) to blow a £20bn hole in her tax and spending plans before the autumn budget. Even without changing the totals the chancellor set out in her spending review on Wednesday, a weaker forecast from the the Treasury's independent watchdog could force her to find significantly more money at the budget to meet her 'non-negotiable' fiscal rules. Reeves has said repeatedly that flexing her fiscal rules – designed to provide certainty over UK public finances – is not an option even if the economic outlook deteriorates. At her spring statement, she left herself on course to meet those rules with less than £10bn of headroom to spare, on a total budget for day-to-day spending of more than £1.3tn. Amid trepidation at the Treasury, the OBR has kicked off its annual summer review of the 'supply side' of the economy – including productivity, which it has consistently overestimated. Sources with knowledge of the OBR's thinking told the Guardian that the watchdog was 'uncomfortable', with the fact its current forecast for productivity growth was more positive than the consensus from other economic forecasters, and wanted to 'rein it in'. Productivity is one of the key determinants of economic growth, and revising it down would have a significant knock on effect on the OBR's forecasts for gross domestic product. The consultancy Oxford Economics estimates that moving the productivity forecast back in line with the average independent projection, would knock 1.4% off forecast GDP at the end of the OBR's five-year forecast period. That would force Reeves to increase taxes or cut spending by an eye-watering £20bn, to meet her fiscal rules and maintain her slim £10bn of headroom. That would be roughly equivalent to raising both the main and higher rates of income tax by 2p. A more cautious approach, taking the middle path between two alternative 'scenarios' the OBR set out in its March economic and financial outlook, could still force the chancellor to make a £12bn correction. The OBR could send an early signal of its intention to revisit its productivity outlook as soon as 1 July, in its regular forecast evaluation report. Andy King, a former member of the OBR's budget responsibility committee, now at the consultancy Flint Global, said: 'The reason why anyone in the Treasury who cares about this will be worried, is that the OBR is currently more optimistic than everyone else. 'What can happen next? Either everyone else thinks, 'We're too pessimistic'; or the OBR thinks, 'We are too far away from the pack, there's been more bad news than good since March, we should revise down.' I think that's the expectation for many.' The Treasury is likely to point the OBR to policies it hopes will be positive for productivity growth in the long term, including infrastructure investment, though the scale of this was already known before the OBR's last forecast in March. Alongside weaker productivity, slower net migration as a result of the government's recent white paper could also prompt the OBR to be more pessimistic. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion James Smith an economist at ING, said: 'Further downgrades to trend productivity growth projections, as well as net migration, mean the chancellor is likely in the red, before even considering the mounting pressures on the public purse. 'The overall shortfall may amount to at least £20bn, and that means tax rises are highly likely.' Adrian Pabst, the deputy director of the National Institute of Economic and Social Research, said the prospect of another significant forecast revision underlined the current instability of tax and spend policy. 'We're in this vicious circle where we've got these fiscal rules, then the OBR have to take a view, because that's their remit, that's their mandate; and then we're constantly speculating about what is going to happen at the next fiscal event,' he said, adding: 'It's not a good place for fiscal policy to be.' In a recent speech, Reeves said: 'Strong and transparent fiscal rules are an indispensable safeguard for working people – and that is why my rules are non-negotiable.' The Treasury declined to comment on the prospect of an OBR growth downgrade but underlined Reeves's determination to stick to her fiscal rules. The OBR declined to comment.
The Independent
11-06-2025
- Business
- The Independent
PM picked ‘wrong Chancellor and wrong priorities', claims Badenoch
Kemi Badenoch has accused the Prime Minister of 'running away' from a 'U-turn' on winter fuel payments for pensioners. The Conservative Party leader accused Sir Keir Starmer of appearing at the despatch box 'all puffed up and self-righteous', and claimed he has 'the wrong Chancellor and the wrong priorities'. Sir Keir listed 'three trade deals, record investment, breakfast clubs, social affordable housing, defence review' and the decision to pump £14.2 billion into building Sizewell C nuclear power station in Suffolk as being among his achievements. At Prime Minister's Questions, Mrs Badenoch told the Commons: 'Last year he said he was taking the winter fuel payment away to balance the books. 'But the books are not balanced, in fact they are worse. 'This year the deficit is forecast to be £10 billion higher since the budget. 'Not since last year's election, since the budget. 'In what way are the books now balanced?' Chancellor Rachel Reeves last year announced that the Government would strip pensioners of the universal winter fuel payment, unless they claimed certain means-tested benefits. But the Government has since said pensioners with a gross taxable income of less than £35,000 will be eligible for payments of up to £300 each winter. Sir Keir replied: 'She's obviously missed the interest rate cuts, the growth figures for earlier this year, the strategic defence review, local transport – £15 billion going in, free school meals, Sizewell, social housing. 'She stands there to lecture us, and I see Liz Truss is obviously back in vogue. 'Advising Reform officially now, haunting the Tories, and I remind her that the shadow home secretary (Chris Philp), I think he was then chief secretary to the Treasury, he gave a Liz Truss budget 9.5 out of 10. 'The Leader of the Opposition said what was wrong with Liz Truss's budget was not necessarily the package, that was alright, it was the way it was sold. 'They've learnt absolutely nothing.' In a follow-up question, Mrs Badenoch said the Prime Minister mentioned Ms Truss because he 'wants to hide from his own economic record'. She added: 'He's a coward. 'Every time he stands up there and talks about Liz Truss it's because he is scared about talking about his record and what is happening to the economy out there. 'Let's bring it back to the U-turn which he's running away from. 'A U-turn on the policy his MPs went out defending time and time again.' Mrs Badenoch continued: 'This is laughable. 'He stands there all puffed up and self-righteous. 'Why can't the Prime Minister just admit that he made a mistake?' In his response, the Prime Minister said: 'Three weeks ago I said that I wanted more pensioners to be eligible for winter fuel. 'I'm really pleased we've set out the threshold for the certainty that is needed. 'She says I don't want to talk about record. 'What about three trade deals, record investment, breakfast clubs, social affordable housing, defence review, Sizewell, we could go on all morning.' He added: 'At the weekend she said that she would be getting better in the role. 'She could start with apologising for the Liz Truss budget, that would be better.' Speaker Sir Lindsay Hoyle rebuked laughing Labour MPs after Mrs Badenoch said her PMQs performances 'get better every week'. He told them their behaviour was a 'very bad look'. In her question, Mrs Badenoch said Ms Reeves said the winter fuel payment 'U-turn won't be funded through higher borrowing'. She asked: 'So, will the Prime Minister admit that it will be funded by putting everybody's taxes up?' Sir Keir said: 'At the budget, we put record investment in our NHS and our public services – record investment – but she comes every week to carp on about national insurance, but she doesn't stand there with the courage of her convictions and say she'll actually reverse it, and the reason she won't? 'Because she won't stand up and say she's against the investment in the NHS, she won't stand up and say she's against the investment in our public services, and we'll all listen very carefully in just 20 minutes when the Chancellor lays out more record investment as to whether they welcome it, or whether they'll say they wouldn't support it.' In her final question, Mrs Badenoch said Ms Reeves had 'made bad choices – bad choices that mean higher inflation, bad choices that have led to lower growth, bad choices that have meant that jobs have been lost every single month since Labour come into office'. She said 'thousands of families' had 'lost their incomes in Stoke, in Grangemouth, in Luton', before she asked: 'Isn't the truth that we've got the wrong Chancellor and the wrong priorities?' Sir Keir said: 'A wrong choice they made was making her Leader of the Opposition.' Turning to the Government's plan to hand the Chagos Islands to Mauritius, where the UK maintains a military presence on Diego Garcia, Mrs Badenoch had earlier claimed 'Mauritius is scrapping income tax' and asked: 'Why on earth should the British taxpayer pay £30 billion for tax cuts in Mauritius?' The Government risked jeopardising the 'vital intelligence and strategic capability' on Diego Garcia without a deal, the Prime Minister warned. 'Legal uncertainty would compromise it in very short order,' he added.
