Chancellor Rachel Reeves speaks at the Treasury on July 8, 2024 in London, England.
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LONDON — Doubts are growing over the Labor government’s flagship growth and investment agenda, with one analyst warning that more tax increases could be in the works as soon as next year.
Britain’s Chancellor of the Exchequer Rachel Reeves announced a series of reforms last week, including deregulation of financial services and measures to boost pension investment – the latest in a series of changes aimed at reviving the country’s economy. is
A higher economic growth rate could theoretically increase the government’s taxes without the need to raise them further, since aggregate income would be higher. Labor has a fine balance to strike, however, in keeping taxes high enough to fund the country’s depleted public services, while businesses have enough cash to invest and grow.
“The chancellor is on a real path with this,” ING economist James Smith told CNBC’s “Squawk Box Europe” on Friday.
“These kinds of regulatory changes — not just in finance but in planning and other areas — if they don’t get the economy going, I think we’re going to see tax hikes again,” he said. “
John Graves, a former deputy governor of the Bank of England, expressed doubt last week that the measures would boost growth, saying that neither financial services deregulation nor pension reforms were “game changers”. are
“I think he [Reeves] There will be some big things to do to try to stimulate private investment,” Guo told CNBC on Friday, referring to planning and infrastructure projects, which are more likely to boost the economy. .
The reforms came just two weeks after Reeves’ bumper tax and spending budget, which included a 40 billion pound ($51.8 billion) tax hike and changes to the country’s debt rules – measures which Reeves said would make the UK were necessary to balance the growing deficit of
The independent Office for Budget Responsibility said at the time that these measures should keep the economy going for the foreseeable future, and it raised its forecast for economic growth over the next two years by several percentage points, lowering the long-term outlook. is given The OBR now expects UK real GDP growth of 1.1 per cent in 2024, followed by an expansion of 2 per cent in 2025, before falling to 1.5 per cent.
Businesses, however – which were hit particularly hard by a steep rise in National Insurance payroll tax – said Labour’s plans were likely to hold back jobs and discourage investment.
“The real risk for the chancellor, and for business too, is that if we don’t see that response in growth, we will get more than that in the next budget,” said ING’s Smith.
The Labor government did not immediately respond to CNBC’s request for comment on further potential tax changes.
‘Disappointing’ growth rate
The UK economy barely grew in the third quarter, growing less than expected A 0.1% expansion, Office for National Statistics data showed on Friday. Gross domestic product (GDP) fell 0.1 percent in September, less than expected and following growth of 0.2 percent the previous month.
“It’s disappointing growth. We’ve had 1% or about 1% growth since the financial crisis. That’s 15 years. So it’s a well-established trend and we need to do something dramatic, Gave commented. On GDP data.
The third quarter was a period of significant uncertainty in the UK, with the government accused of talking down the economy and scaring away investors ahead of the October 30 budget.
As such, some analysts have suggested that more time should be given to sleep in on the government’s fiscal plans, and the development agenda in general.
Sarah Coles, head of personal finance at Hargrave Lansdowne, told CNBC via email on Monday that “measuring success in very short-term risks is a failure before the green shoots begin.” get a chance to reach the surface.”
Paul Dales, chief UK economist at Capital Economics, said the plans were likely to be measured in the coming months and years by how well economic growth held up against the OBR’s forecasts – regardless of any tax changes. It will then be followed.
“If this [growth] is weak and this weakness is expected to persist, then this may mean that taxes need to rise further to achieve the forecast level of tax revenue,” Dales said in an email. Noting that capital economics predicts an increase in growth, he added that, all else being equal, higher taxes can be expected to increase government spending.
Markets will now be watching whether the government’s reforms can boost the flagging British economy.
Despite this, Coles suggested that a tax increase – at least in the next fiscal statement in March – would be “highly unlikely”.
“There’s always a chance we’ll be hit with something that meets expectations, but at the moment Labor has committed a big budget a year, so anything significant any time soon is a surprise. There will be — especially after such a big fiscal year. The event in October,” Coles said.
“We will get a clearer picture over the coming months as to whether the government has got the balance right.”
