Hung out to dry?

Or perhaps in a flap.

Odd how we keep getting our Budgets the wrong side of bigger global stories and greater uncertainty, thereby hitting a bond sell off.

Does anyone at the UK Treasury have a calendar?

Reeves, like Truss, is in the same old bind. Without structural reform, there is no growth, without money, no reform. Here are her voluminous supporting papers. So much effort for so little.

Both maybe thought Joe Biden did it on the never never, why can’t we?

And after so long, the outcome markets most desire in the US looks likely, in other words that no one wins. And on the bright side, one irritating candidate has to now leave the stage, for good.

 

CAREFULLY CRAFTED

 

So, the ho-hum budget first.

Reeves baked in higher inflation for longer by the post-election pay rises – creating less room for maneuver. The O.B.R now forecasts a very modest rise in inflation over the next year. However, real interest rates remain too high, although it will require cover from the US, to cut rates here. But that too will happen.

That embedded inflation also precluded raising consumption taxes, as they hit inflation – crazy, as excess consumption in many areas, is the core issue.

She also needs to be lucky. Tory chancellors weren’t, but one day that may happen to a UK chancellor. Luck is rather more likely than achieving the current rather puny growth forecasts, which still assume increased productivity, especially in the public sector.

She will seemingly stick with the usual populist nonsense on alcohol taxes and fuel duty (surely a major error). While the desire by HMRC to broaden the tax base and suck everyone into providing frightening amounts of data to them, continues.

This looks like a slightly demented and sinister desire, because it underpins a belief that with enough data, they will know everything. The way every budget has a whopping benefit from “closing the tax gap”, £6 billion of it this time, of tax due but not recovered, is extraordinary (link shows the 2023 position) and seldom challenged.

In reality this is about finding new ways to fine you, and the more people are drawn into tax, as well as the more complex it is, the more the resulting fines.

 

FUTURE HINTS

 

We also note the first step to closing tax advantages for charities, or at least those the current government happens to dislike. Once it can pick and choose charities, it will not stop at education, nor will a future government share their tastes.

Another theme is one rule for the private sector, another for the state. The attack on carers, allowing them to earn more (so kind) while at the same time introducing a marginal tax hike rate of some 17% on earnings between £5,000 and £9,100, is a very clever sting.

Against that at last acknowledging that pension surpluses on “bought out” schemes should not endlessly accrue to the buyers, never the workers, is good news. True, again, just so far, the miners, but if that’s the first step for one off pensioner payments, from massively over-funded buy outs, it is no bad thing.

Women get hit – the new £22 billion of employment tax, all to be raised from the private sector, will hit employment, in particular female part time employment. And in areas where the minimum wage has already driven large scale shifts from payroll to welfare, it will not make it any easier to reverse that slide.

Against that there is quite clear-eyed desire not to hurt the residential property market, in many ways the other big potential tax target. Nor, as yet most pensions.

And I am not that fussed over farmland, anything with a tax break gets overpriced and hoarded. We can get misty-eyed about farmers, but the guys hauling the hay are seldom the ones pocketing the cheques.

Lower asset prices and more liquidity are no bad thing.

 

An A-

 

So overall, given her hand, the limited number of big revenue targets left, and given prior restrictions on housing and consumption taxes, this was an elegant compromise. Aside from the childish swipe at private schools, it seemed balanced. A massive fiscal drag will also persist, of course.

The long list of departmental handouts sounded a lot, but really will not amount to much, even for the NHS – we still need to banish their ridiculous silos that absorb cash, but deliver no healthcare outcomes.

So, Wes Streeting at Health remains key in all this. Otherwise, Reeves will find, like Hunt, that just feeding the public sector beast, simply grows a bigger mouth.

Another, more consequential contest, for the next Prime Minister also closes, and Kemi is a genuine reformer, if she ever gets to No 10. We will see the end of the drift we have endured for much of this century; only early Blair was a comparable radical.

 

SIDEWAYS WOULD BE GOOD

 

Markets? Well, they don’t like much of any of it.

The cyclical fall in interest rates has driven a lot of them up this year, but the sense of too far too fast hangs heavy.

We will not stop inflation as long as governments are hooked on deficit spending, and as long as they keep passing inflationary laws on wages and job security.

Whoever wins in the US election on Tuesday night, like Reeves, has the same problems the day after. Too many wars, an uncompetitive economy, too much regulation, too much debt – those are not easy to solve.

Markets may rise on positions been unwound and new ones taken, but ultimately will respond to rate cuts and falling inflation.

So, whether they end up in a flap, or we end up hung out to dry, it all comes to much the same thing.