Latest news with #public finances
Daily Mail
3 hours ago
- Business
- Daily Mail
Red alert for Reeves as government borrowing hits record high outside Covid in June with £16bn spent on debt interest alone - DOUBLE a year ago - fuelling tax hike fears
' misery was compounded today as government borrowing hit a new record for June outside of Covid. The public sector borrowed £20.7billion last month, far higher than the £17.6billion analysts had pencilled in. The level was £6.6billion higher than a year earlier and only behind the height of the pandemic in 2020 since comparable figures began in 1997. Alarmingly for the Chancellor, the surge was driven by debt interest as well as higher spending. Servicing debt cost £16.4billion over the month, more than double the number for the previous June. Borrowing for the first three months of the financial year to date stood at £57.8billion, £7.5billion more than the same three-month period in 2024. Ms Reeves is desperately hunting for options to increase taxes as she faces an estimated £30billion black hole in the public finances at the Autumn Budget Ms Reeves is desperately hunting for options to increase taxes as she faces an estimated £30billion black hole in the public finances at the Autumn Budget. The tax burden is already set to hit a new high as a proportion of GDP after the last Budget imposed a £41billion increase - the biggest on record for a single package. Labour has ruled out increasing income tax, employee national insurance or VAT. Many believe the Chancellor will opt to extend the long-running freeze on tax thresholds. The policy, in place since 2022, is due to end in 2028-29. By that point it will have dragged an extra 4.2million people into the tax system as wages rise. Ms Reeves has been carefully avoiding ruling out a 'wealth tax' - with backbenchers pushing for 2 per cent levy on assets worth more than £10million. However, she is thought to be privately opposed to the move, with tax experts and Cabinet ministers warning it would only drive away more wealth people from Britain. A raid on pensions is still said to be on the table, with fears that the Treasury is again looking at slashing reliefs. Currently higher-rate earners are spared 40 per cent tax on money that is put into retirement funds. However, reducing the relief to the 20 per cent basic rate could raise around £15billion for the government. The idea was rejected at the Budget last year, but Ms Reeves' situation has dramatically worsened. Chief Secretary to the Treasury Darren Jones said: 'We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy. 'This commitment to economic stability means we can get on with investing in Britain's renewal, including fixing our NHS, strengthening our national defence and building hundreds of thousands of affordable homes through our plan for change.' But shadow chancellor Mel Stride said: 'Rachel Reeves is spending money she doesn't have. 'Debt interest already costs taxpayers £100billion a year – almost double the defence budget – and it's forecast to rise to £130 billion on Labour's watch. 'Labour's jobs tax and reckless borrowing is killing growth and fuelling inflation – paving the way for more tax hikes and more borrowing in the autumn. Make no mistake – working families will pay the price for Labour's failure and costly U-turns. 'Only the Conservatives, under new leadership, will break this cycle. Only the Conservatives believe in sound money and low taxes.'
The Guardian
4 hours ago
- Business
- The Guardian
UK borrowing rises more than expected, putting pressure on Rachel Reeves
The UK government borrowed more than expected in June amid pressure on the chancellor, Rachel Reeves, to repair the public finances. Figures from the Office for National Statistics (ONS) show public sector net borrowing rose to £20.7bn. This was £6.6bn higher than the same month a year earlier and the second-highest June borrowing figure since monthly records began in 1993. City economists had forecast borrowing to increase to £16.5bn. It comes as Reeves prepares for a tough autumn budget amid mounting speculation over the need for large tax rises to cover a multibillion-pound shortfall in the public finances after the government's high-stakes welfare U-turn earlier this month. Ministers have warned of 'financial consequences' after the backtracking on disability benefits and winter fuel payments for pensioners, which will cost more than £6bn. Alongside a sluggish economic outlook and possible downgrade in productivity forecasts from the Office for Budget Responsibility at the autumn budget, economists have warned Reeves could face a £30bn shortfall against her fiscal rules. The UK economy shrank for two consecutive months in April and May, while unemployment and inflation have risen, as businesses and households come under pressure from tax rises, elevated borrowing costs, and global uncertainty amid Donald Trump's trade war. Reeves has faced growing demands from Labour backbenchers, unions and the former party leader Neil Kinnock to consider introducing a wealth tax. However, the chancellor has so far sought to keep her options open while pushing to reassure business leaders that her priority remains driving up economic growth. The Institute for Fiscal Studies said on Monday there was a 'strong case' for the chancellor to tweak her self-imposed rule, which requires day-to-day spending to be matched by receipts by the fifth year of official forecasts. 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 More details soon …
Yahoo
3 days ago
- Business
- Yahoo
Tax rises: Freeze on income tax thresholds for millions left on table by Treasury minister Darren Jones
Treasury minister Darren Jones left open the prospect of freezing the thresholds for paying income tax beyond 2028 as the Government scrambles to balance the public finances. He stressed that the policy as of 'today' was not to extend the freeze as pledged by Chancellor Rachel Reeves in the Budget last year. He repeatedly emphasised that Labour's election manifesto promised not to raise the 'headline rates' of income tax, VAT and National Insurance on working people, leaving open the option of further freezing thresholds rather than increasing them in line with inflation. In 2021, then Chancellor, Rishi Sunak announced the income tax personal allowance and higher rate threshold would be frozen from April 2022 until April 2026. The following year, Jeremy Hunt who was now Chancellor announced the freeze would be extended for a further two years until 2028. In the Budget last October, Ms Reeves said the freeze would be lifted from 2028-29. 'Extending the threshold freeze would hurt working people,' she said. But her deputy Mr Jones, Chief Secretary to the Treasury, declined to repeat her promise. 'That is Government policy today,' he told LBC Radio. 'But what I'm not going to do is speculate one way or the other about any form of tax policy.' Earlier, he told Times Radio: 'What our manifesto said is we are going to protect working people by not increasing the headline rates of income tax, VAT or National Insurance.' People start paying the basic rate of income tax once they earn over £12,570 and the higher rate once their income goes above £50,270. London's median full-time salary is £41,866 so many senior health workers, police officers, teachers, and private sector employees are being hit by 'fiscal drag' of the income tax threshold freeze, pulling them into paying the higher rate. Extending the freeze would raise over £38 billion a year in 2029/30, according to the Office for Budget Responsibility. The fiscal watchdog has warned that the UK's state finances are on an 'unsustainable' path due to a raft of public spending promises the Government 'cannot afford' in the longer term. Recently, the revolt by Labour MPs over welfare reforms blew a £5 billion hole in the public finances, on top of the £1 billion cost of the U-turn on winter fuel payment cuts. Ms Reeves has declined to rule out looming tax rises. But Mr Jones said he did not recognise a report that there was now a £20 billion black hole in the public finances. The Government claims it has made economic growth its No1 priority. But Bank of England governor Andrew Bailey says companies had cut jobs and restricted pay rises as they 'adjust' to having to pay the higher National Insurance contributions on employers announced by Ms Reeves. In an interview with The Times, Mr Bailey said he believes the interest rate set by the Bank of England, currently 4.25%, would be lowered in future, after it was held in June.
Telegraph
5 days ago
- Business
- Telegraph
The awful truth about Labour? They're just continuity Sunak
At Prime Minister's Questions this week, Keir Starmer told us 'Mr Speaker, we're only just getting started'. I fear so. It's time to cower under the beds. For if this first year of Labour government is anything to go by, we have a grim prospect ahead. Let's review the record. GDP per head is at the same level as mid-2022. It flatlined in Labour's first six months, grew in the first quarter of this year only by pulling activity forward to avoid the April tax increases, and will no doubt shrink in the second. Nobody is getting better off – or if they are, it's at someone else's expense. In parallel, and not coincidentally, Rachel Reeves pushed up the tax burden by around 1.5 per cent of GDP, driving it to the highest levels for over 70 years – and yet managed to increase rather than reduce the deficit too. Labour's backbenches won't allow any spending cuts or even restraint. It is not surprising, then, that the OBR said this month that 'UK public finances [are] in a relatively vulnerable position and facing mounting risks.' So Reeves is now in a vicious circle: tax increases cause slower growth, receipts then fall, tax goes up further, and the real economy starts to collapse. Accordingly, wealth creators are fleeing, employment is falling and unemployment is growing, and inflation is well over target. The once outlandish idea of a wealth tax – rejected even by the 1970s Labour government – now seems a real prospect. We are well into a downward spiral. All this is made worse by the deranged doubling down on net zero, a policy which is based on simple untruths about the cost of wind and solar power. Indeed the so-called renewables industry is not a business in any meaningful sense of the word: it only exists because of subsidy and government regulation and therefore destroys value for the country rather than creates it. Its results are that Britain pays some of the highest electricity prices in the Western world, energy-intensive industry flees the country, and the government's 'industrial strategy' robs Peter to pay Paul to subsidise energy costs for their favoured clients. Meanwhile, Reeves denounces the burden of regulation but does nothing about it. The new Employment Bill will disastrously weaken Britain's labour market. The Renters' Rights Bill will push up housing costs further. Bridget Phillipson's Schools Bill is destroying one of the successes of recent years. Even football has got its new regulator. The planning system is not being deregulated, just worked harder, and housebuilding is still falling, disastrously so in London. The country's social contract feels dangerously close to fraying. Non-European legal net migration in 2024 was over half a million, 544,000 to be precise. The overall figure was only lower, at 431,000, because more Brits and EU citizens left than arrived – and who can blame them? Illegal immigration on small boats is at its highest level ever, and there is now a growing culture of suspicion and confrontation, not surprisingly, between communities and illegal arrivals dumped in hotels. Dissent is repressed and awkward facts are covered up. That's why, as shadow minister Alex Burghart put it on Thursday, the potential for civil unrest is 'underpriced'. And finally, Starmer points to his trade deals with India and the US, yet can't bring himself to admit that neither would be possible if we were still in the EU. And he has just agreed a deal with the EU itself that allows Brussels to set our food and agriculture rules and our carbon prices, without any say in them, makes us pay for the privilege, and gives away our fishing grounds for another 12 years too: a joke negotiation with a dangerous result. Truly, Britain has not had such a dreadful and incompetent government for many years, a government that not only doesn't govern in the interests of the people but doesn't even seem to like them very much, a government that feels more like an imposed colonial regime than one with any genuine popular consent. Yet one thing must be acknowledged. Yes, things are getting worse fast. But the direction of travel hasn't changed, only the pace. High taxes and spending; net zero; high immigration; the destruction of the rental market; the football regulator; the smoking ban: all these were the projects of the last years of the Conservative government. In many ways, the premiership of Starmer is a mere continuation of Rishi Sunak's 20 months in office. Labour has doubled down on them, and added madnesses of their own, but they are on a well-travelled path which the Conservative Party has not yet convincingly disowned – as its poll ratings show. Kemi Badenoch claims that the Tory party is 'under new management': well, maybe, but there isn't yet a new plan. One is needed soon. British voters' consent for the current ways of doing things is now fragile. Yet much of our insouciant political class seems simply indifferent to this reality. A prospectus for radical change is needed if there is to be an effective opposition and if we are, as a country, to dig ourselves out of this mess. Who can pick up the baton and get us onto a new track? Perhaps we will find out this autumn.
Bloomberg
5 days ago
- Business
- Bloomberg
French Central Bank Chief Praises Plan to Fix ‘Very Excessive Deficit'
The French government's contested plan to rein in the budget deficit goes in the right direction to tackle deep problems in public finances, the chief of the central bank said. 'The general orientation seems to go in the right direction to finally get control over our public debt while preserving economic growth,' Bank of France Governor Francois Villeroy de Galhau said.
