As the UK prepares for the upcoming Budget on November 26, 2023, Chancellor of the Exchequer Rachel Reeves is expected to announce significant tax increases totaling tens of billions of pounds. This announcement comes despite her prior commitment not to raise taxes following last year’s adjustments, raising questions about the government’s fiscal strategy.
Economic Perspectives on the Budget
Senior economists have expressed skepticism regarding Reeves’s justification for the tax hikes, particularly in light of growing uncertainty in the economic landscape. Sir Charlie Bean, a former member of the Office for Budget Responsibility (OBR), emphasized that the anticipated downgrades in productivity, projected to cost the Treasury approximately £20 billion, should not have taken the government by surprise. He stated, “The government cannot claim that this is something that’s come out of the blue.”
Bean, who served on the OBR’s Budget Responsibility Committee from 2017 to late 2021, highlighted that these forecasts had been repeatedly warned about, indicating a lack of preparedness on the part of the government. He criticized Reeves for not allowing enough fiscal headroom, arguing, “You’re asking for trouble if you leave yourself a small margin of error.”
Another prominent economist, Jonathan Haskel, supported the notion that the current economic review was justified. He urged the government to focus on enhancing public sector productivity, particularly given recent data indicating a decline in productivity within the healthcare sector during the three months leading to June. Haskel remarked, “Our current poor labour productivity is a choice.” He further noted that stagnation in productivity within the health and care sector has significantly hindered overall labour productivity growth.
Market Reactions and Broader Implications
The announcements regarding the Budget and potential tax rises have already begun to impact the market. Share prices for major advertising firms have dropped as concerns mount that larger tech companies are consuming a greater share of advertising expenditure. Additionally, the FTSE 100’s strong performance this year may obscure underlying issues within the economy, according to analysts.
In light of these developments, attention will remain fixated on the government’s fiscal policies and their implications for various sectors. With 650 jobs at risk following the collapse of a prominent company, the urgency for effective economic management has never been more pronounced.
The upcoming Budget, poised to reshape the economic landscape, will reveal whether Reeves’s strategy will resonate with both the public and economists alike. As the live updates conclude, the focus shifts to the implications of the anticipated fiscal changes.
