Jeremy Hunt’s hopes for budget tax cuts get a boost

Published

10 months ago

January 23, 2024

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Government borrowing came in sharply lower than expected last month, boosting the chancellor’s aim of pre-election giveaways in his March budget.

Data from the Office for National Statistics (ONS) showed public sector net borrowing at £7.8bn in December.

That was £8.4bn less than in the same month a year earlier and the lowest in any December since 2019.

Economists had forecast a figure above £11bn but debt interest payments fell by more than expected.

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That was due to October’s sharp drop in the retail price index measure of inflation to which many government bonds are linked.

The cost of servicing student loan debt also fell sharply.

The borrowing sum took the total for the first nine months of the financial year to £119.1bn.

While that figure is £11.1bn up on the April-December period a year earlier, it is almost £5bn less than the Office for Budget Responsibility forecast for the period.

Jeremy Hunt told Sky News last week, while attending the World Economic Forum in Davos, that he wants to cut taxes in his 6 March budget as it would be the quickest route to getting the economy growing again.

The UK, like many of its European rivals, is flat-lining as the effects of inflation and the battle to get the pace of price rises down hold back demand.

The chancellor faces a delicate balancing act as he faces demands from Conservative MPs to bolster the party’s popularity in the run-up to the election, expected later this year.

The UK tax burden is running near highs last seen since the wake of the Second World War but he will be anxious to do nothing to diminish the likelihood of interest rate cuts in the months ahead.

A big giveaway would risk stoking inflation, forcing the Bank of England to potentially delay the start of reversing its interest rate hikes which financial markets see from May.

Such a delay could force a halt to falling borrowing costs, particularly for mortgages in the current price war.

The latest inflation data showed an unexpected increase – blamed on a rise in tobacco duties imposed by Mr Hunt in the autumn statement.

The big question is how much wiggle room Mr Hunt will have given the challenges across the global and domestic economy.

At the time of his budget update in November, he was judged to have about £13bn to play with without diverting from his target for bringing down the public debt burden.

Ruth Gregory, an economist with Capital Economics, said that figure was now likely to be around the £20bn area.

“That will probably allow him to unveil a freeze in fuel duty in April 2024 [costing about £6bn a year] but perhaps
also to announce more crowd-pleasing measures, such as a 1p cut to income tax [costing £6.9bn a year], while still maintaining fiscally prudent appearances,” she wrote.

Chief secretary to the Treasury Laura Trott said: “Protecting millions of lives and livelihoods during Putin’s energy shock and a once-in-a-century pandemic has created economic challenges.

“However, it is right that we pay back these debts so future generations are not left to pick up the tab.

“Because of this government’s decisive action, the economy is now beginning to turn a corner. Inflation has more than halved.

“Debt is on track to fall as a share of the economy. And we have been able to afford tax cuts for 27 million working people, and an £11bn tax cut to drive business investment.”

Her Labour shadow, Darren Jones, said: “Rishi Sunak failed to grow the economy and now we know he failed to get debt falling.

“National debt his now at the highest level since the 1960s – and has more than doubled since 2010.

“Britain cannot afford another five years of this low growth, high tax Conservative government that is leaving working people worse off. It’s time for change.”

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UK economy grows by 0.1% between July and September – slower than expected

Published

12 hours ago

November 15, 2024

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UK economy grows by 0.1% between July and September - slower than expected

The UK economy grew by 0.1% between July and September, according to the Office for National Statistics (ONS).

However, despite the small positive GDP growth recorded in the third quarter, the economy shrank by 0.1% in September, dragging down overall growth for the quarter.

The growth was also slower than what had been expected by experts and a drop from the 0.5% growth between April and June, the ONS said.

Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2%, slowing from the rapid growth seen over the first half of 2024 when the economy was rebounding from last year’s shallow recession.

And the metric that Labour has said it is most focused on – the GDP per capita, or the economic output divided by the number of people in the country – also fell by 0.1%.

Reacting to the figures, Chancellor of the Exchequer Rachel Reeves said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers,” she said in response to the figures.

“At my budget, I took the difficult choices to fix the foundations and stabilise our public finances.

“Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal,” Ms Reeves added.

The sluggish services sector – which makes up the bulk of the British economy – was a particular drag on growth over the past three months. It expanded by 0.1%, cancelling out the 0.8% growth in the construction sector

The UK’s GDP for the the most recent quarter is lower than the 0.7% growth in the US and 0.4% in the Eurozone.

The figures have pushed the UK towards the bottom of the G7 growth table for the third quarter of the year.

It was expected to meet the same 0.2% growth figures reported in Germany and Japan – but fell below that after a slow September.

The pound remained stable following the news, hovering around $1.267. The FTSE 100, meanwhile, opened the day down by 0.4%.

The Bank of England last week predicted that Ms Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.

The Bank’s quarterly report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.

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Chancellor’s Mansion House speech vows to rip up red tape – saying post-financial crash rules went ‘too far’

Published

22 hours ago

November 14, 2024

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Chancellor's Mansion House speech vows to rip up red tape - saying post-financial crash rules went 'too far'

Chancellor Rachel Reeves has criticised post-financial crash regulation, saying it has “gone too far” – setting a course for cutting red tape in her first speech to Britain’s most important gathering of financiers and business leaders.

Increased rules on lenders that followed the 2008 crisis have had “unintended consequences”, Ms Reeves will say in her Mansion House address to industry and the City of London’s lord mayor.

“The UK has been regulating for risk, but not regulating for growth,” she will say.

It cannot be taken for granted that the UK will remain a global financial centre, she is expected to add.

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It’s anticipated Ms Reeves will on Thursday announce “growth-focused remits” for financial regulators and next year publish the first strategy for financial services growth and competitiveness.

Bank governor to point out ‘consequences’ of Brexit

Also at the Mansion House dinner the governor of the Bank of England Andrew Bailey will say the UK economy is bigger than we think because we’re not measuring it properly.

A new measure to be used by the Office for National Statistics (ONS) – which will include the value of data – will probably be “worth a per cent or two on GDP”. GDP is a key way of tracking economic growth and counts the value of everything produced.

Brexit has reduced the level of goods coming into the UK, Mr Bailey will also say, and the government must be alert to and welcome opportunities to rebuild relations.

Mr Bailey will caveat he takes no position on “Brexit per se” but does have to point out its consequences.

In what appears to be a reference to the debate around UK immigration policy, Mr Bailey will also say the UK’s ageing population means there are fewer workers, which should be included in the discussion.

The greying labour force “makes the productivity and investment issue all the more important”.

“I will also say this: when we think about broad policy on labour supply, the economic arguments must feature in the debate,” he’s due to add.

The exact numbers of people at work are unknown in part due to fewer people answering the phone when the ONS call.

Mr Bailey described this as “a substantial problem”.

He will say: “I do struggle to explain when my fellow [central bank] governors ask me why the British are particularly bad at this. The Bank, alongside other users, including the Treasury, continue to engage with the ONS on efforts to tackle these problems and improve the quality of UK labour market data.”

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Reeves has welcome support from Bank’s governor as she goes for growth and seeks to woo City

Published

1 day ago

November 14, 2024

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Reeves has welcome support from Bank's governor as she goes for growth and seeks to woo City

When Gordon Brown delivered his first Mansion House speech as chancellor he caused a stir by doing so in a lounge suit, rather than the white tie and tails demanded by convention.

Some 27 years later Rachel Reeves is the first chancellor who would have not drawn a second glance had they addressed the City establishment in a dress.

As the first woman in the 800-year history of her office, Ms Reeves’s tenure will be littered with reminders of her significance, but few will be as symbolic as a dinner that is a fixture of the financial calendar.

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Her host at Mansion House, asset manager Alastair King, is the 694th man out of 696 Lord Mayors of London. The other guest speaker, Bank of England governor Andrew Bailey, leads an institution that is yet to be entrusted to a woman.

Ms Reeves’s speech indicates she wants to lean away from convention in policy as well as in person.

By committing to tilting financial regulation in favour of growth rather than risk aversion, she is going against the grain of the post-financial crash environment.

“This sector is the crown jewel in our economy,” she will tell her audience – many of whom will have been central players in the 2007-08 collapse.

Sending a message that they will be less tightly bound in future is not natural territory for a Labour chancellor.

Her motivation may be more practical than political. A tax-and-spend budget that hit business harder than forewarned has put her economic program on notice and she badly needs the growth elements to deliver.

Her plans to consolidate local authority pension schemes so they might match the investing power of their Canadian and Australian counterparts is part of the same theme.

Infrastructure investment is central to Reeves’s plan and these steps, universally welcomed, could unlock the private sector funding required to make it happen.

Bank governor frank on Brexit and growth

If the jury is out in a business financial community absorbing £25bn in tax rises, she has welcome support from Mr Bailey.

He is expected to deliver some home truths about the economic inheritance in plainer language than central bankers sometimes manage.

Britain’s growth potential, he says, “is not a good story”. He describes the labour market as “running against us” in the face of an ageing population.

With investment levels “particularly weak by G7 standards”, he will thank the chancellor for the pension reforms intended to unlock capital investment.

He is frank about Brexit too, more so than the chancellor has dared.

While studiously offering no view on the central issue, Mr Bailey says leaving the EU had slowed the UK’s potential for growth, and that the government should “welcome opportunities to rebuild relations”.

There is a more coded warning too about the risks of protectionism, which is perhaps more likely with Donald Trump in the White House.

“Amid threats to economic security, let’s please remember the importance of openness,” the Bank governor will say.