Latest news with #UKgrowth
Yahoo
16-07-2025
- Business
- Yahoo
Rachel Reeves Gets Brutal Reality Check Just Hours After Claiming Labour Is Making 'Progress' On The Economy
Rachel Reeves has been given a stark reminder of the problems facing the UK economy, just hours after claiming the government was making Brits better off. Official figures released by the Office for National Statistics (ONS) revealed that inflation unexpectedly rose last month to 3.6% – its highest point in nearly 18 months. The ONS blamed rising food and transport costs for the rise, which takes the rate of inflation to nearly double the Bank of England's 2% target. The grim news was a brutal reality check for the chancellor, who just hours before had been telling the great and the good that Labour was making 'progress' on fixing the economy. Making her annual Mansion House speech, Reeves said: 'This evening, I want to talk about the progress we have made over the past year – restoring stability, securing investment and delivering reform. 'And I want to talk about the future – the economy we are building, the opportunities we are seizing and the prosperity we are creating.' Reeves went on to say that she was 'proud of how far we have come in a year of government'. 'I know that the changes we have made will transform our economy and our country, she said. 'And I know that you will waste no time in seizing the opportunities that lie ahead – to build a stronger economy, to deliver the renewal of Britain, to make working people in all parts of our country better off.' Less than 12 later, at exactly 7am this morning, the ONS brought the chancellor back down to earth with a bump. Economists had expected June's rate of inflation to remain at 3.4%, so the actual figure of 3.6% was a shock – and yet another blow for Reeves. ONS acting chief economist Richard Heys said: 'Inflation ticked up in June driven mainly by motor fuel prices which fell only slightly, compared with a much larger decrease at this time last year. 'Food price inflation has increased for the third consecutive month to its highest annual rate since February of last year.' Shadow chancellor Mel Stride laid the blame fairly and squarely at Reeves' door. He said: 'This morning's news that inflation remains well above the 2% target is deeply worrying for families. 'Labour's decision to tax jobs and ramp up borrowing is killing growth and stoking inflation – making every day essentials more expensive – and because Labour are too weak to take tough choices on spending, more tax rises are on the way, leaving families facing ever-rising costs.' Reeves said: 'I know working people are still struggling with the cost of living.' She insisted Labour policies like increasing the national minimum wage and free breakfast clubs in schools would make a difference. 'But there is more to do ... to put more money into people's pockets,' she added. With the economy contracting and more tax rises looming, the outlook remains gloomy for the UK – and the chancellor. Cost Of Living Blow For Rachel Reeves As Inflation Soars Blow To Rachel Reeves As Inflation Rises To Highest Level In 10 Months Richard Madeley Mocks Chancellor Rachel Reeves With New Job Title After Inflation Rise
Daily Mail
06-07-2025
- Business
- Daily Mail
ALEX BRUMMER: The folly of Labour wealth taxes
During the run-up to Labour's election a year ago, I had a bruising on-the-air encounter with an LBC radio interviewer. My suggestion was that plans by Rachel Reeves to target wealth would undermine the energy, entrepreneurship and enterprise needed to drive UK growth. The interlocutor insisted it was time we rid ourselves of rich free loaders with little interest in the broader population. The pay gap between those at the top in business and working people has been widening for decades. Tesco boss Ken Murphy picked up £10m last year, which is 431 times that earned by the average worker in the group. As boss of a top FTSE 100 company, everything about Murphy's remuneration is known and explained in ferocious detail in the company's annual report. Research by the London School of Economics shows that the top 1 per cent of taxpayers living in Britain account for 30 per cent of the nation's total income tax take. The targeting of aspiration by Labour is proving an own goal. The outflow of the rich from the UK, some 16,500 people on the last count, harms spending and investment. The elimination of non-domicile privileges began under the Tories. The Chancellor hammered in the last nail. The change is calculated to add £4.2billion to the tax take of the Exchequer in 2026-27 and more in the subsequent two years. She will be fortunate. Rather than stay in the UK and wait for their privileges to vanish, many non-doms already have fled. The current preferred destination is Milan. For the price of £145,000, or equivalent fee to the Italian government, it is possible to circumvent taxes on worldwide income. As wealthy residents depart, property prices in smart central London and sales of luxury goods and services have been punished. The willingness to invest in start-ups, real estate deals, partnerships and trading in Britain is diminished. The City survived Brexit because UK wholesale markets and derivatives trading remained the first choice for European and American dealers. The number of jobs heading towards Europe was far smaller than predicted. When the vice-chairman of Goldman Sachs, Richard Gnodde, was driven offshore this year, one recognised how serious the exits were becoming. Milan, Dubai, Singapore are each growing rich on exiles from investment banks, private equity, and hedge funds. Private plane leasing firm NetJets is doing a roaring trade from billionaires swooping in for a couple of days to complete transactions but leaving before their feet touch the ground. And we wonder why UK posh firms such as Burberry, Smythson and others are having a torrid time. As alluring as soak the rich taxes are to the Angela Rayner wing of the Labour Party, they will not resolve the nation's fiscal problems. Every penny may count in difficult times, but the extra income generated by inheritance tax reforms will be paltry. The dial is going to be shifted by the torrent of wealth, accumulated by baby boomers, as it is released to the next generations. Unfairness in the tax system such as the 'carried interest' loophole exploited by private equity barons should be removed. But the Chancellor and Treasury would do well to recall that there is no group more mobile than the super-rich. Ask Sir Jim Ratcliffe, retailer Sir Philip Green, F1 star Sir Lewis Hamilton et al. They voted with their feet long ago.
Telegraph
18-06-2025
- Business
- Telegraph
Reeves tax raid blamed as UK suffers dramatic growth downgrade
Britain's leading business group has slashed its UK growth forecasts after Rachel Reeves's tax raids slammed the brakes on the economy. The Confederation of British Industry (CBI) expects GDP to grow by just 1.2pc this year and 1pc next year, down from the 1.6pc and 1.5pc previously predicted. Louise Hellem, the CBI's chief economist, suggested the rising cost of employment in the wake of the Chancellor's Budget last October, which has hammered the private sector, had contributed to the downgrade. She said: 'Those decisions at the autumn Budget to increase taxes on National Insurance contributions alongside the increases in the national living wage have had a material impact on business decisions. 'They have made costs of being in the UK increase and they have meant many businesses have had to make tough choices, particularly on hiring decisions – they are pausing those.' Ms Reeves's £25bn raid raised the rate of tax employers pay on their workers' wages from 13.8pc to 15pc, and cut the threshold at which the levy kicks in – making it more expensive to hire part-time staff in particular. Ms Hellem urged the Chancellor to seek ways to make the tax system more efficient instead of raiding businesses yet again in the 2025 Budget scheduled for the autumn, as weak growth raises fears that another black hole will open up in the public finances over the coming months. Global uncertainty The CBI also warned that businesses are struggling with Donald Trump's trade war. Exporters are suffering directly from the taxes applied to their sales into the US, while uncertainty is hitting growth in the wider global economy and undermining confidence in investment decisions. Sustained geopolitical turmoil, including the strikes between Israel and Iran, add to the sense of uncertainty which threatens business investment. Martin Sartorius, economist at the CBI, said: 'All of these global events lead to a huge amount of volatility in global markets, leading to a more risk-averse mindset, so businesses might be thinking more about whether they want to invest, given currency fluctuations and the interest rate outlook. 'Given how much tariffs have chopped and changed over the last few months, some firms are just saying it is better to scenario plan and to wait and see, because if they suddenly shift their operations from one country to another, maybe they will find out in a day, a week, a month, that tariffs or other restrictions are hitting that location.' Britain's GDP grew by 0.7pc in the first three months of the year, boosted in part by a surge in exports as American importers sought to bring in goods before tariffs added to their price. The CBI's economists expect quarterly growth to slow over the course of this year then recover into 2026 as rising wages, slowing inflation and lower interest rates allow households to spend more money. The analysts predict the Bank of England will cut its base rate from 4.25pc today to 3.5pc in a year's time. Borrowing rules The growth forecast downgrade came as Helen Miller, from the Institute for Fiscal Studies, warned the Chancellor that the changes to the borrowing rules 'is not a get-out-of-jail-free card' for extra spending. Speaking before MPs on Tuesday, she said: 'The fiscal rules are supposed to be a constraint on what you can do – they are not meant to be a target to say we've freed up this space, now let's spend it all. 'We are still borrowing money. That comes with cost, it comes with debt interest costs.' Ms Reeves changed the fiscal rules last year to allow her to borrow another £50bn, including by changing the targeted measure of public debt to offset financial assets against borrowing. The rules also allow borrowing for investment, but not for day-to-day government spending. 'It matters what you are borrowing for. There is a fiscal rule [which is] trying to be a constraint, it is not a get-out-of-jail free card, it doesn't mean that once you have got that constraint you can always just borrow up to the maximum, spend it on what you like and that is ok,' Ms Miller said. 'You still have to do hard yards of thinking what are you borrowing for, for what purpose, is it a good use of borrowing.' A Treasury spokesman said: 'We're investing in Britain's renewal through our Plan for Change to make working people better off, and the spending review set out how we'll deliver jobs and growth – including plans to improve city region transport, a record investment in affordable homes and funding Sizewell C. 'We have also secured deals with the EU, US and India to help lower costs for businesses and we have stabilised the public finances helping interest rates to fall four times since July.'
Reuters
06-06-2025
- Business
- Reuters
UK government to set out $3 trillion make-or-break spending plan
LONDON, June 6 (Reuters) - British finance minister Rachel Reeves will divvy up more than 2 trillion pounds ($2.7 trillion) of public money between her ministerial colleagues on Wednesday, making choices that will define what the year-old Labour government can achieve in the next four years. Prime Minister Keir Starmer and Reeves will have to pick between the demands of the public health service - which absorbs around 40% of day-to-day departmental spending - increased defence commitments and other priorities including policing, energy infrastructure, transport and housing. "There are good things I have had to say no to," Reeves told reporters on Wednesday at an event to promote 16 billion pounds of regional public transport investment that will form part of next week's package. Labour has said that growth is its top priority and that its decisions led Britain to be the fastest-growing country in the Group of Seven in the first quarter of 2025. But the IMF expects UK growth to lag behind the United States and Canada in years to come and be only slightly faster than the euro zone. The review comes at a tricky time for the government, which won a sweeping parliamentary majority in July 2024 but has since seen its popularity slide, falling behind Brexit campaigner Nigel Farage's right-wing Reform Party in local council elections in England last month. Following that, citing improved public finances and growth, the government decided to at least partially restore heating subsidies for pensioners, which it removed from millions shortly after the election, damaging its popularity. Reeves set out the contours of next week's spending plans at her first budget in October, so there should be no big surprises for financial markets overall, although individual sectors may have winners and losers. "Unless Rachel Reeves comes out and says 'I am changing the spending envelope', the market should be broadly ambivalent," Deutsche Bank's chief UK economist, Sanjay Raja, said. Day-to-day spending on public services is due to rise by an average of 1.2% a year on top of inflation between 2026-27 and 2028-29, while capital budgets will increase by an average of 1.3% in real terms through to 2029-30, according to estimates from the Institute for Fiscal Studies think tank. Both rates of growth are much slower than in the current financial year, when investment spending is set to jump by 11.6% and current spending rises by 2.5%. The spending increases are unlikely to be shared out equally. Capital-intensive plans to raise defence spending to 2.5% of gross domestic product, announced by Starmer in February, mean other departments will see no real-terms increase in the pace of investment after this year, the IFS estimates. For day-to-day spending, increasing the health budget by 2 percentage points more than the average - as was typical when Labour was last in power before 2010 - would mean real-terms cuts of 1% a year for other departments, the IFS said. The opposition Conservative Party said Reeves' spending since taking office was likely to increase debt interest costs by 80 billion pounds by the time of the next election in 2029. "We can expect her to trumpet all of the additional projects and programmes she is funding - without mentioning the fact it is all being paid for from borrowing," Conservative finance spokesperson Mel Stride said. Labour lawmakers with an interest in departments where spending might be squeezed are nervous. Florence Eshalomi, who chairs parliament's committee on housing and local government, has written to Reeves saying allocations in the spending review needed to match the government's ambitions to build 1.5 million homes by 2029, as set out in the manifesto it was elected to deliver. "We appreciate the many challenges, but this is a key mission for the government," Eshalomi told Reuters, adding government needed to "do something differently" to ease the housing crisis and couldn't rely solely on the private sector. Chris Curtis, who chairs a group of Labour parliamentarians focused on boosting economic growth, said the government could not focus solely on short-term problems. "Those demanding 'jam today' are ignoring the reality that without growth, public services and living standards will stagnate further. We've got to make tough choices now, or we'll soon be facing impossible ones," he said. Businesses and investors are also keen to see how Reeves makes her sums add up. Tax rises are not an option as Reeves has said she only intends to change tax policy once a year, and she has barely any room to borrow more without breaking what she has often said is an "ironclad" commitment to new fiscal rules. The review is "zero-based" meaning in principle some whole areas of public spending can be cut. In practice, savings are more likely through a mix of reducing the number of civil servants, squeezing public-sector pay or vaguer efficiency savings, said Raoul Ruparel, director of Boston Consulting Group's Centre for Growth. But if the spending plans imply some government departments will have to make efficiency gains on a scale not seen in recent years, then future tax rises become more likely. "It's a very difficult path to navigate," said Deutsche Bank's Raja, who expects Reeves will have to announce 10-15 billion pounds of tax rises in her next annual budget in the autumn. "Tax rises are inevitable," he said. ($1 = 0.7381 pounds)
The Independent
03-06-2025
- Business
- The Independent
Rachel Reeves must take back control of the growth agenda
Chancellor Rachel Reeves does not present as one of life's gamblers. Her proudest boast, curriculum vitae aside, is her 'iron' determination to put Britain's public finances on a sustainable footing. Yet, as the latest report from the OECD shows, that objective has been far from fulfilled – and will become even more difficult to achieve, at least over the coming year or so. The organisation's downgraded UK growth forecasts – 1.3 per cent this year, and 1 per cent for 2026 – are miserable, and will do nothing to lift confidence among consumers and investors, nor banish the dismal mood in her party about its electoral prospects. For most people, there is no practical difference between living in an economy with such minimal expansion and one that is stagnant or in a mild recession. Ms Reeves's problem is that, fiscally speaking, she likes to live dangerously – or, at least, that is how things have turned out. She has never provided herself with sufficient leeway in meeting her self-imposed fiscal rules to withstand the kind of bad luck or more serious shocks to the economy that might come any chancellor's way. Such unfortunate developments have been all too frequent in her time in office, and that has led to a sort of perma-crisis over tax, spending and borrowing, with politically sensitive cuts to benefits adding to the sense of jeopardy. Time and again, Reeves has created the thinnest of margins of error – about £10bn, in a spending total of around £1,300bn – and, time and again, it has been wiped out. Sometimes, that has been because of the usual vicissitudes, such as inflation proving more stubborn than usual, and elsewhere because of unpredictable events, most obviously Donald Trump's gyrating attitude to tariffs. But she has made her own mistakes, too. Cutting the pensioners' winter fuel payment yielded minimal additional revenues for maximum electoral loss, and she placed too much emphasis on raising employers' national insurance contributions, which appears to have had a more depressing effect than thought. Her biggest gamble, however, has been in hoping that she could meet her fiscal rules by the absurdly small margins she allowed herself. The OECD recommends that the chancellor 'steps up' her efforts to create a more comfortable buffer against adversity, and Ms Reeves would be as well to take their advice. The comprehensive spending review next week is the best opportunity she will have on that side of the ledger to inspire confidence that she is indeed making the right kinds of tough choices – ones that protect the most vulnerable, as well as boosting growth. At the Budget in the autumn, she will have another chance to 'kitchen-sink' the measures needed to avoid the periodic crises that have unnerved markets and so drained confidence in the government. The OECD suggests a 'balanced' approach: targeted spending cuts, including the closure of tax loopholes; revenue-raising measures such as re-evaluating council tax bands for the first time since they were introduced in 1991; and the removal of distortions in the tax system. These reforms to taxation would probably mean a fairer and more rational system, and might thus make the economy a little more healthy. But the main effect must be to chart a medium-term fiscal strategy that markets can have confidence in, which provides room for the Bank of England to ease interest rates, and, at last, puts the government back in control of events, rather than being pushed around by them. Few governments have foundered as swiftly as the Starmer administration, but that does not mean recovery, both economic and political, is impossible. Far from it. This early in the parliament, and with such a substantial majority at the government's disposal, Ms Reeves has a chance to put right the mistakes she made in her first months, and move beyond (rightly) chastising the Conservatives for their complacency and banging on about the notorious £22bn 'black hole'. To borrow a phrase popular in government circles, she should have gone further and faster last year to sort the public finances out for the rest of the parliament. The good news for her and her colleagues is that it is not too late to lay those firm fiscal foundations for growth. But this year, she should play safe, take more notice of the raw politics of her choices, and develop a more compelling narrative about the future rewards for prudence. It will be painful, but not as uncomfortable as watching another wager fail. She will indeed need an iron determination.
