Rachel Reeves to deliver ‘fixing the foundations and change’ budget – but it’ll be a difficult sell

Published

4 months ago

October 30, 2024

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The Labour manifesto never did add up.

On the one hand, Keir Starmer vowed there would be “no return to austerity” under his government, while also insisting he had “no plans” to raise taxes beyond an £8bn raid on private equity, oil and gas companies, private school fees and non-doms to pay for more teachers and NHS appointments.

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In reality, whoever won the election faced tens of billions of pounds in tough choices over tax and spending. But instead of levelling with us, the two main parties embarked in a “conspiracy of silence” in order to win votes.

Today, the truth will out, in a budget which will define Sir Keir Starmer’s first term in a way his manifesto did not.

There will be huge tax rises and there will be changes in the fiscal rules to allow the chancellor to borrow more to invest in Britain’s crumbling infrastructure.

And we will finally find out which “working people” are the ones Sir Keir Starmer wants to protect as small and big businesses, property owners, shareholders – and perhaps “Middle England” too – braces itself for tax rises, and the government braces itself for the fall-out.

The prime minister set the hare running on who’s in the firing line for tax rises last week at the Commonwealth Heads of Government summit in Samoa when he told me “working people” were those who “go out and earn their living, usually paid in a sort of monthly cheque” but they did not have the ability to “write a cheque to get out of difficulties”.

He told me explicitly that “working people” who also owned assets, such as property or shares, did not fit his definition.

So business owners, property owners and Middle England do have some cause for alarm.

The pledge to “not increase national insurance, the basic, higher, or additional rates of income tax, or VAT” has been tweaked in recent weeks to a promise to “protect the payslips of working people”.

Employers are expecting an increase in national insurance contributions they must pay on wages – many will argue this is a flagrant breach of a manifesto pledge.

In another blow to employers, but a win for those struggling on low wages, Labour have also announced a 6.7% increase in the National Living Wage for over three million workers next year, amounting to a pay boost worth £1,400-a-year for an eligible full-time worker.

Is this the moment the manifesto is revealed as a sham? Labour insiders insist not and point, again, to the “£22bn black hole” in the current financial year they discovered when their took office – and which ratchets up to a £40bn gap in the public finances over the course of the parliament – that they now have to plug.

Politically, they hope to blame the big tax rises and borrowing on the economic inheritance left to them by the Tories and buy some space with voters.

As one senior government figure put it to me: “The scale of the economic inheritance is bigger than thought and it has blown a political and economic hole in our first few months.”

This will be a message Rachel Reeves will want to land at the despatch box on Wednesday.

But a public disillusioned with politicians might not see it like that as they watch a Labour chancellor, flanked by a prime minister who promised the opposite in the election, embark on a massive round of tax rises that but months ago they were told were not coming down the tracks.

Insiders acknowledge this is going to be a tax and spend budget that goes far beyond what we were told to expect when Labour were asking for votes.

But they hope what they can do with this big moment is to take it beyond the winners and losers and frame this first Labour budget in over 14 years as “forging a new settlement” for the people and the country.

To that end, this will be the “fixing the foundations and change” budget: “This is a new economic settlement from a government willing to investment and, in particular, borrow to invest, and that is a change and it will show a path towards long term growth.”

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Because, as we drill into who is a working person, and who is going to be hit with tax raises in this budget, there will also be a big story about billions of investment in our country’s energy and transport infrastructure, into housing and hospitals and schools.

“If we get it right, on the evening of the budget, we want to be able to show that we protected your pay slip, are fixing the NHS and investing to rebuild Britain,” one senior figure explains. “What’s the alternative? Choice is going to feature very heavily in the chancellor’s speech. We have made our choices and we are asking business and the wealthiest to pay a bit more to grow our economy and protecting working people.”

And this new settlement, when it lands, will be massive. Rachel Reeves intends to change her borrowing rules to allow up to £53bn more in borrowing to be spent on public services and infrastructure.

Trailing the decision at the International Monetary Fund summit in Washington last week, the chancellor said she was making the change in order to take opportunities for the economy “in industries from life sciences to carbon capture, storage and clean energy to AI and technology”, as well as using borrowing to “repair our crumbling schools and hospitals”.

The danger for the chancellor is that what actually comes out the other side is anger over tax rises not flagged in the manifesto, or accusations that the government is being Janus-faced if it claims it’s protecting working people should it also, as speculated, extend the freeze on income tax thresholds beyond the 2028 deadline set by the last government, which would drag millions of workers into higher tax bands (and raise as much as £7bn a year for the government).

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How might the middle classes and wealthier voters respond to their incomes being squeezed? And how might businesses respond to being asked to pay billions more in taxes from a government that has been banging on about being pro-business for months?

It is going to be a difficult sell, no doubt. But this government is calculating that short-term pain now will translate into gains in the medium to long term if Reeves can pull it off and kick-start economic growth.

The hope is that come the next Labour manifesto, the pledges on the NHS, economy, better housing and jobs have been met and the public can forgive the tax rises foisted on them to get there.

Starmer talked endlessly about it being a change election and it will be this budget, not his manifesto, that proves the point.

Business

Trump agrees further tariff concessions but April threat remains

Published

9 hours ago

March 6, 2025

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Trump agrees further tariff concessions but April threat remains

Donald Trump has announced that most goods imported from Mexico are to be exempt from his trade tariff regime for at least four weeks, just days after the charges were imposed.

He confirmed the move following a phone call with his Mexican counterpart Claudia Sheinbaum and, according to his commerce secretary, was due to announce a similar concession to Canada later in the day.

“We are working hard, together, on the Border, both in terms of stopping Illegal Aliens from entering the United States and, likewise, stopping Fentanyl,” Mr Trump posted on Truth Social.

The latest climbdown by the US president came after he surprised financial markets on Wednesday by waiving tariffs against carmakers following pleas from motor industry bosses.

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The White House revealed then that parts due to flow into the US from Mexico and Canada as part of the manufacturing supply chain would not qualify for tariffs so long as they complied with an existing trade agreement struck between the three.

‘Rules of origin’ guidelines under the USMCA deal allow goods to move between the three countries tariff-free if they qualify with a designation that they were made in North America.

US commerce secretary Howard Lutnick told Sky’s US partner network CNBC that if the concession was extended to Canada, then more than half of usual cross border trade volumes would be exempt.

He too signalled there were signs of progress in Mr Trump’s dispute with America’s closest trading partners, saying each had worked hard to make progress in tackling imports of Fentanyl – blamed for high crime and deaths in US communities.

But Mr Lutnick explained that, as things stand, the reprieve would only last until 2 April when the Trump administration plans to impose reciprocal tariffs – on top of the 25% charges that came into force on Tuesday.

The car industry believes that no products from Canada and Mexico are currently subject to tariffs as they comply with the USMCA deal agreed in 2020.

It should spare consumers extra costs of at least $4,000 on the purchase of a new vehicle, industry data showed.

While that could still change from 2 April, Mr Trump is under intense pressure to relax his tariff regime permanently amid a backlash from US firms and financial market investors who fear it is self defeating.

A closely-watched forecast has even suggested that the threats of a trade war were enough to push the US economy into recession before Mr Trump took office.

The dollar has sunk in value and US government borrowing costs have risen on the back of the turmoil.

It is widely expected that the European Union will be next to face tariffs – possibly from 2 April – after Trump threatened action “very soon” just last week.

Commenting on the threat to the eurozone from such a move, the president of the European Central Bank Christine Lagarde said on Thursday: “Just the threat of those tariff increases and potential retaliations are putting a brake on – on investment, on consumption decisions, on employment, hiring, all the rest of it.

While Mr Trump has not issued a specific threat against the UK, her counterpart at the Bank of England Andrew Bailey told a committee of MPs on Wednesday that the US should work “multi-laterally” rather than bilaterally to resolve its disputes.

Business

Millions in compensation for customers impacted by Barclays outages

Published

20 hours ago

March 6, 2025

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Millions in compensation for customers impacted by Barclays outages

Barclays is to pay millions in compensation for recent IT outages which prevented customers from banking.

The lender said it expects to pay between £5m and £7.5m in compensation to customers for “inconvenience or distress” caused by a payday outage last month, the influential Treasury Committee of MPs said.

The glitch began at the end of January and lasted several days.

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This was caused by “severe degradation” in the performance of their mainframe computer, a large computer used by big organisations for bulk data processing.

It resulted in the failure of 56% of Barclays’s online payments.

Up to £12.5m, however, could be paid when all outages over the last two years from January 2023 and February 2025 are factored in, the committee said.

It would be by far the biggest amount of compensation paid by a firm in the last two years. Irish bank Bank of Ireland would be the second having issued £350,000 in compensation.

The committee is investigating IT problems at all banks that prevent or limit customer access.

Why does this keep happening?

As part of their inquiries, banks said common reasons for IT failures included problems with third-party suppliers, disruption caused by systems changes and internal software malfunctions.

The responses were received before last Friday’s online banking failures which caused difficulties for millions on payday but the committee said it would request data on the latest disruption.

A recurring problem

The nine top banks written to by the Treasury Committee accumulated 803 hours of unplanned outages, they said, equivalent to 33 days.

These hours were comprised of 158 individual IT failures. Barclays’ payday failure is not captured in the numbers.

As a result, the bank with the longest outages was NatWest with 194 hours of failures.

Business

Trump moves to exclude carmakers from tariff pain

Published

1 day ago

March 5, 2025

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Trump moves to exclude carmakers from tariff pain

Donald Trump is to exclude carmakers across North America from the pain of US tariffs levelled against Mexico and Canada, following apparent pressure from motor bosses.

The White House confirmed the concession was made after the president spoke to the bosses of Ford, General Motors and Stellantis in a call on Wednesday.

Each company has manufacturing operations and suppliers in Canada and Mexico.

There will be a tariff exemption of at least a month on vehicles made across the continent but only if a previous agreement on so-called ‘rules of origin’ is implemented in full.

It governs where a product is first sourced and where a tariff may apply during transit across borders.

“Reciprocal” tariffs are still planned from April, the president’s spokesman said.

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Manufacturers have complained of being worst affected by the imposition of 25% tariffs against both Canada and Mexico since Tuesday because flows of parts between the three countries can be hit by tariffs multiple times.

The complicated nature of their operations can mean a single component crosses a border more than once during the production process.

Such a big spike in costs from tariffs poses a big risk to sales as customers are asked to pay more to help compensate for the sanctions.

Automakers’ share prices have been among the worst hit since Mr Trump took office again in January.

The car bosses, according to Reuters news agency sources, pledged additional US investment but wanted clarity on tariffs ahead.

Mr Trump urged them to shift their operations to the United States, according to a White House statement.

The tariff concession marked the first compromise on the trade issue since the president signalled, on Tuesday, that there would be no U-turns and only more tariffs after Canada said it would respond in kind.

There have been growing signs this week that corporate America is uneasy, at best, with the tariff policy against both Mexico and Canada

Those US neighbours, along with China, which is facing 20% tariffs, are the country’s three biggest trading partners.

The imposition of tariffs on all goods has been received badly by financial market investors, worried that US profitability is at risk.

One closely-watched forecast for US growth suggested that the threat of tariffs since Mr Trump’s election victory was confirmed had hammered activity and plunged the country into recession.

There are mounting reports of boycotts against US goods in Mexico and Canada.

The nerves were publicly admitted by the boss of Jack Daniel’s maker Brown Forman, Lawson Whiting, on Wednesday when he described Canadian provinces taking American-made alcohol off shop shelves as “worse than a tariff”.

US stock market values are sharply down since the inauguration and the dollar has lost more than three cents against rivals including the euro and the pound just this week amid the tariff turmoil.

Such is the growing investor concern for the health of the US economy, the tariff implications have been partly blamed for a steep fall in oil prices.

Brent crude was trading at $68 a barrel earlier on Wednesday – its lowest level for more than three years.