Over 350 years ago, Jean-Baptiste Colbert, Louis XIV's finance minister, famously declared that the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing. For Rachel Reeves that probably translated as the largest amount of revenue, with the least political and economic damage. I don’t know about you, but I hear plenty of hissing post Budget. Small businesses, particularly those in retail and hospitality worry that the increase in employers National Insurance payments and a rise in the minimum wage will squeeze profits and push them over the edge, whilst farmers fear that land worked for generations will be sold to fund inheritance tax.
It is often thought that private enterprise is a better driver of growth than the state, and at the moment there seems to have been very little help offered in this regard. It will take time to see whether the Office for Budget Responsibility’s somewhat gloomy forecasts for UK GDP growth are overly pessimistic, but if correct then a rise to 2% next year before declining throughout the remainder of the parliament feels uninspiring at best.
Elsewhere bond markets were spooked, pushing borrowing costs higher although thankfully to a lesser degree than after Liz Truss’s mini-budget in 2022. There are fears that higher levels of government borrowing and public spending could prove inflationary, and therefore lead to a more cautious path of interest rate reductions from the Bank of England. Whilst the fact that inflation has undershot forecasts in the recent past should be enough to tip the balance in favour of a 25bps reduction tomorrow lunchtime, it might be that there is then no further relief for borrowers until the New Year.
