Our Hardman & Co Insight of October 2024 looked forward to the first Labour Budget for 14 years. The main theme was that, because the new Chancellor, Rachel Reeves, had ruled out increases in taxes on ‘working people’, investors would bear the brunt of any tax increases to fill the alleged £22bn hole in the public finances left to the new government by the Tories. The pain that was going to be suffered was increased by the aim to raise some more to improve public services, so Reeves booked £40bn of tax rises.
We have to admit that, whilst there was an impact on investors, the main issue about the Budget was completely different. Instead of investors being the largest target, it turned out to be employers. That sparked concern about growth prospects and the ‘fiscal rules’. As a result, 2025 will be very tough for the UK economy. Our forecasts at the end of this piece for the year ahead make difficult reading.
This was going to be a government focused on “fixing the foundations”. That would mean they would lay out a plausible plan to grow the economy. That growth would generate more tax revenue to pay for more/better public services, and, as if by magic, a virtuous circle would be created.
The private sector would grow faster because the adults were back in charge and markets and business would enjoy a new confidence. Private sector growth would be supplemented by the government borrowing more to invest in public infrastructure. But there would be no borrowing for current spending; more than that, there was a safety margin baked into the numbers to reassure markets.
Normally it is the things that governments cannot control that are the source of economic difficulties; as Prime Minister Harold Macmillan replied when asked what the largest challenges were: “Events, my dear boy, events”.
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