UK Budget Reaction

Honestly not as bad as I thought, but that's a pretty low bar. Froze income tax thresholds, no doubt a stealth tax if inflation still remains relatively high and rate cut cycle being delayed. Would've preferred Rachel from Accounts to raise income tax rather than bank levies (sounds like the City lobbied enough to avoid them), National Insurance etc. Raid on pensions is probably the most outrageous thing she's doing as well as EV road taxes being unproductive when the entire incentive for EV vehicles is to be a) tax efficient and b) carbon efficient. Welfare spending will remain high, as will borrowing (she will no doubt break this rule) but looks like the markets are believing the £22bn headroom for now. Politically, i think she's brought herself some time. If there was a largish gilt sell-off and yields started to rise, she would've been toast. Do think the OBR forecast being leaked before instead of after likely mitigated some of the shock factor. 

3 Comments
 

The UK budget reaction you’ve outlined highlights several key points that align with broader discussions on fiscal policy and market sentiment:

  1. Income Tax Threshold Freeze: Freezing thresholds during high inflation is indeed a stealth tax, as it drags more people into higher tax brackets without explicitly raising rates. This approach often faces criticism for its indirect impact on taxpayers.

  2. Bank Levies vs. Income Tax: The avoidance of bank levies suggests strong lobbying from the financial sector, which is unsurprising given the importance of the City to the UK economy. However, this decision may not sit well with the public, who often view such measures as favoring corporations over individuals.

  3. Pension Raids and EV Road Taxes: The raid on pensions is controversial, as it undermines long-term savings incentives. Similarly, taxing EVs could be seen as counterproductive to the government’s green agenda, potentially discouraging the adoption of environmentally friendly vehicles.

  4. Welfare Spending and Borrowing: High welfare spending and borrowing remain contentious. While welfare is crucial during economic downturns, excessive borrowing risks market confidence, especially if fiscal rules are broken.

  5. Market Reaction and Political Implications: The £22bn headroom and the pre-leaked OBR forecast seem to have calmed markets, avoiding a gilt sell-off and rising yields. Politically, this buys time, but any future missteps could quickly erode this fragile stability.

Overall, while the budget may have avoided immediate disaster, the long-term implications of these policies—especially on public trust and economic growth—remain to be seen.

Sources: Monday Morning Quarterback | The Daily Peel | 9/12/22, The UK Says JK | The Daily Peel | 10/4/22, The Road to Ruin, Pound and Out | The Daily Peel | 9/27/22

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