November 26, 2025 • 25 mins
UK Chancellor of the Exchequer Rachel Reeves expanded her fiscal headroom to £22 billion by upping a range of taxes including: a levy on homes valued above £2 million, increasing fuel duty, and freezing the threshold people start paying income tax for longer. But her crucial budget was overshadowed when the Office for Budget Responsibility released its economic analysis, including all the budget's key measures, ahead of the Chancellor's big speech. Our budget top team of Bloomberg's Chief UK economist Dan Hanson, our UK Political Editor Alex Wickham, and Opinion Columnists Rosa Prince and Marcus Ashworth.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
It is my understanding that the Office of Budget Responsibilities
Economic and Financial Outlook was released on their website before
this statement.
Speaker 3 (00:18):
This is deeply.
Speaker 2 (00:19):
Disappointing and a serious error.
Speaker 3 (00:21):
On their parts.
Speaker 4 (00:22):
That was the UK Chancellor Rachel Reeves. Hello, I'm Caroline Hepke,
I'm you and.
Speaker 1 (00:27):
Pots Hello and welcome to this Bloomberg UK Budget podcast special. Now.
In twenty twelve, it was the omni Shambles. In twenty
twenty two, it was that disastrous mini budget. Well, maybe
this year's budget will become known as the pre release
shambles after the economic analysis of the budget and all
of the headline tax measures were posted online by accident
(00:47):
on the obi's website more than thirty minutes ahead of
Rachel Reavey's speech, a chaostic disruption for which the OBR
had to swiftly apologize.
Speaker 4 (00:56):
Well, in a moment, we're going to bring you reaction
to the budget itself from our political editor Alex Wickham,
as well as analysis from Bloomberg opinion writers Marcus Ashworth
and Rosa Prince. We'll dig into the numbers in the
way that only Bloomberg can do. With our UK chief
economist Dan Hanson.
Speaker 1 (01:13):
Will of course discuss that unprecedented situation which saw the
Chancellor's carefully choreographed speech front run, leaving markets scrambling to
react in just a moment and Caroline in terms of
announcements though made by Rachel Reeves and before that at
the OBR, there was a lot, wasn't there.
Speaker 4 (01:28):
Yeah, huge number of headlines. So the Chancellor is raising
taxes by nearly thirty billion pounds and keeping income tax
thresholds frozen for longer. She's lowering the cash portion of
iSER tax free savings allowances and other considerable measure There'll
also be a tax on homes worth more than two
million pounds from twenty twenty eight. Then there's the increased
(01:51):
tax on dividends, property and savings. Also the removal of
the two child benefit cap for universal Credit, which is
a type of benefit. There's a mileage tax for electric vehicles,
and then there are also changes a reduction to the
benefits that you get from sacrificing some of for your
salary into pensions, a whole load of different tax changes.
(02:15):
Here's the Chancellor, Rachel Reeves just giving her take and
some of the measures that she outlined.
Speaker 2 (02:22):
This labor government is changing our country in the base
of challenges on our productivity. I will grow our economy
through stability, investment and reform. I've met my fiscal rules
and built our economic resilience for the future. I have
asked everyone to contribute yes for the security of our
(02:42):
country and the brightness of its future. But I have
kept that contribution as low.
Speaker 3 (02:48):
As possible by reforming.
Speaker 2 (02:50):
Our tax system, making it fairer.
Speaker 3 (02:53):
And stronger for the future.
Speaker 2 (02:55):
I have protected our NHS, maintaining public investment and having
efficiency in government spending. I've taken action on our broken
welfare system, routie out waste and lifting children.
Speaker 3 (03:08):
Out of poverty. And I have cut the cost of
living with.
Speaker 2 (03:14):
Money off bills and prices frozen, all while keeping every
single one of our Manifesto commitments.
Speaker 4 (03:23):
So that was the Chancellor, Rachel Reeves. The opposition Conservative
leader Kemmy Baynock then gave a response after that speech
from Rachel Reeves that lasted well over an hour. It
was a hard hitting response calling for the Chancellor to resign.
Speaker 1 (03:38):
Well, let's dig into the numbers now are UK Chief
economist Dan Hansen has jumped into the studio of Dan.
You've had a little bit more time than usual two
digest the figures as of all of us with the
obr's massive blunder, what did you make over all about
with the budget and that particularly that extra headroom we've
got from the Chancellor.
Speaker 5 (04:00):
In of itself, it's good news, isn't it. Twenty two
billion pounds is more than nine point nine billion pounds,
so taking up face value, it is good news. I
think what what I'm looking at and what we've been
looking at sort of as we're trying to sort of
take on board the OBR document, we were absolutely not
ready for that whatsoever. But I think we're sort of
back on track now that a lot of the pain
(04:22):
is backloaded, so the tax rises are backloaded in the
near term, there's actually a little fiscal giveaway which lower
CPI inflation through a feel duty freeze and freezing energy bills.
All of that was pretty much expected, and I think
the backloading was probably expected as well. And the question
that comes from delaying tax increases or pushing the pain
(04:43):
into the latter years of the parliament, when you're thinking
of it from a political perspective, is will it actually
be delivered, and so there's a question you've got this
sort of these two forces weighing on the UK's physcal
credibility in this budget. On the one hand, you've got
more headroom. We've all been asking for that, wanting that,
the markets have been wanting that. But on the other hand,
(05:04):
you've delivered it in a way that doesn't look as
credible as it could, say, had you raised, for example,
the basic rate of income tax or something like that.
So I mean, just on the point of why we
got that league a couple of weeks ago, it's quite
clear now looking at the OBR forecast why. It's because
they handed Reeves a much better than expected I think
(05:28):
fiscal forecast. So the fiscal deterioration was not that large.
It was about six billion pounds at the end of
the forecast thirteen billion pounds if you take into account
the policy U turn, so that is about half what
people were expecting. So she has been able to bring
this headroom up, probably by doing a little bit less
(05:50):
than she feared she might, which is why we've had
that U turn on income tax.
Speaker 4 (05:54):
Yeah, taxes overall though are going to go buys almost
thirty billion pound as you say, there will be more
leeway for the chancellor twenty two billion pounds in terms
of the fiscal headroom. Growth has been downgraded by the OBR,
Inflation a little bit higher overall. Is it going to
(06:15):
end up being a credible budget, one that sticks, one
that can be delivered? I know that's quite a big
thought in terms of how this budget is going to
be digested by investors.
Speaker 5 (06:28):
Yeah, so I think I think if the I mean,
let's just put aside the fact that the forecast got
published completely at the wrong time. But if you look
at the shape of the obr's forecast now, I would
say it looks much more realistic than it did, say
in March, or has done in past forecasts. So that's
a tick in the obr's box. Obviously, the pre relelye
(06:49):
or the release of it early is a is a big,
a big error, and that'll be the focus. But actually,
if you look at the shape of the forecast, they've
up there, They've lowered their growth forecast, they've up their
inflation forecasts slightly, and that's due to stronger wage growth.
We thought that was going to be the case that
they would do something like that, So all of those
things taken together. If I look at their forecast now,
(07:10):
and if you look at it relative to the consensus forecast.
For example, our react on the terminal has a chart
showing this, you know they're right close to consensus now.
They're not outside of the basically the band of all
external forecasters, right at the top of the range, which
is just not the right place to be as a
fiscal forecaster. Where the credibility question comes in is the
(07:32):
policy response to that, Because as I say, the fiscal
deterioration wasn't quite as bad as first thought. Reads has
been able to do the sort of stealth tax approach,
if you like, by delaying the pain. So I think
there's probably on the credibility as I say, setting aside
the early release of the forecast, on the credibility front,
looking at the obr's forecast, it looks more realistic. That's
(07:55):
a big tick. But as I say, there are question
marks I think at least about about the policy package
in terms of will it actually be delivered with an
election on the horizon or you know, August twenty twenty nine,
it's due by then, a lot of these policies will
be biting at that point, so there's a real question
mark there, so.
Speaker 1 (08:12):
It concerns about the credibility of the numbers. I just
wanted to just ask you about what the situation was
like where you're sitting in the newsroom when these numbers
came through. How much of a shot was it to you,
and how did you deal with it?
Speaker 5 (08:29):
Well, I used to I mean the OBR, I said
to Anna Edwards on television, as this sort of happened.
This has never happened before. The OBIS are very secretive organization,
They're very good at this sort of thing. There's never
a leak. We were ready to obviously respond to Rees's
speech rather than the OBR document, which has got so
(08:49):
many details in it, so it's a very different sort
of test of your mental acumen. The speech sort of
delivers high level numbers and you can try and piece
something together. The OBR document doesn't lie about the numbers
because it's all there in black and black and blue
and a little bit of white.
Speaker 1 (09:06):
So it.
Speaker 3 (09:09):
Was a bit of a shock.
Speaker 5 (09:11):
As I said at the start, we feel like we're
just about back on track now, but we're going to
be as everyone will be digesting this this afternoon. I
think you know, if I'm going to say the high
level high level points are it's probably about as expected.
She boosted the head room, perhaps a little bit more
than expected. She lowered CPI inflation in the near term.
(09:31):
We thought she'd do that, and she still laid the
pain with the tax measures. And that seems pretty much
what the consensus was going into the going into it,
and you've seen from the market reaction hasn't been huge,
so that you know, and if anything has been marginally positive, okay, but.
Speaker 4 (09:48):
It was certainly confused and the Office of Budget Responsibility
had to apologize for releasing the data early, well before
the Chancellor even stood up, and so that was quite
a scramble in some fusion really in markets. Thank you
so much, Dad for being with us. Bloomberg's UK Chief economist,
Dan Hanson my thanks to you. Now let's bring in
the rest of our top team, our Bloomberg Budget Voices,
(10:10):
our political editor Alex Wickham from Bloomberg Opinion, our UK
commentator Rosa Prince, and last but not least, Marcus Ashworth,
who covers European markets for Bloomberg Opillion. Alex Wickham, straight
to you, I was reading what you were putting out
as we were all watching charts of Rachel rees You
talked about it being chaotic at the beginning with the
(10:33):
release of the OBR figures early. What did you make
overall of the budget.
Speaker 6 (10:39):
Yeah, it's always a nightmare when you're impressibonche getting your
lunch and your editor rings humans get back to your
desk immediately. Yeah, that was one of those things. I mean, look,
there are some winners from this budget. It may be
enough to get Rachel Reeves and Kissed Arma through the day,
through the week, which is their main ask at the minute.
That's how badly things have been going for them. There
(11:00):
is that higher than expected HEAVEM twenty two billion, which
so far, so far seems to have kept markets largely calm.
There is stuff in there for Labour MPs to waive
their papers in the Commons Chamber in delight over things
like removing the two child benefit cap, lifting hundreds of
thousands of children out of poverty. There are wins for
pensioners with the state pension going up, for low earners
(11:21):
with the minimum wage going up. Those are Labour policies
that will keep Labour's core vote happy. But there is
so much bad news in there that will over the
coming days leave investors and labour MPs and voters all
wondering about the future for Britain. Really, when you see
living standards rising more slowly than expected, that's not good news.
When living standards are in grasing living standards. Raising living
(11:43):
standards are the core aim of this government, along with
economic growth, which is downgraded, the tax burden hitting an
all time high, as the welfare bill still soares. There
are lots of painful things in this budget that will
make people doubt over the coming days and weeks whether
this government has the right plan for the future.
Speaker 1 (12:02):
I want to ask you to dig into some of
the detail of this because we've had so many kites.
It kind of feels like every kite in the kite
shop was sort of released over the over the last
few months.
Speaker 3 (12:13):
Just tell us that were there.
Speaker 1 (12:14):
Any nasty surprises, was anything that we weren't expecting in
this budget? What do you think? What do you think
more the political narrative be over the coming weeks as
we digest this.
Speaker 7 (12:25):
Yeah, well, I mean I'm sure over the next hours
and days people will be going through the figures and
finding out if there are any sort of niche surprises.
But I think it's more rather than of the little surprises.
I think it's more the kind of bald fact which
faces you when you actually look at the overall budget
of the tax burden going up. I mean, you know,
we are now on a trajectory where we're at thirty percents,
(12:48):
really high, you know, historically high levels. And I think that,
as Alex said, that's something which we'll get we'll move
on from this budget will kind of to somecent forget
about all the chaos and the or but that will
be something that day in day out, will will be
felt in voters pockets now as they think about spring
elections coming up further down line a few years time
(13:09):
of general election. I think that will have a lasting impact.
Speaker 4 (13:13):
Okay, well, the Chances are saying I'm asking everyone to
make a contribution. That's her view, the opposition leader saying
it's time for the Chances to resign, that she should go.
It did feel very stark, and I think actually some
of the issues for the UK that have been so
pent up really emerged in this budget, didn't they Marcus.
(13:34):
It's not something that investors were in much doubt about.
They know this, how are they going to react to it?
Speaker 1 (13:41):
Well?
Speaker 8 (13:41):
I think short term, me am I going to relief Roley.
This is not quite a defeat snatch from the jaws
of victory, because the OBR have given her a much nicer,
happier layout than she could have had, and certainly she
was trailing. I don't know what that's all about, but
she'd have known about this by the end of October.
So some very strange politics going on. That's the overall
level of competence, which initially why guilt yields rose. However,
(14:04):
the guilt yield, particularly long end, is falling as it
should do. It should fall a lot more. She may
not get as big a benefits she could and could
have out of this budget, so long end guilt supplies falling,
which is good news, I guess overall for the influence
of that dead interest bill, which is one of the
big killers. So I think, you know, this isn't as
(14:27):
bad as it could have been. A lot of it
is backloaded, and this is the real problem. No one's
going to quite believe that she is going to raise
these taxes. Certainly things like this mansion tax, the salary
sacrifice stuff. None of it makes much sense. I don't
think it raised very much. And it's a double hit
on employers. She's hitting landlords again, she's hitting savers at
dividend payments for you know, entrepreneurs. This is anti growth
(14:51):
and that's where the gawngrade of ovr's growth forecast is worrying.
And an upgrade in their inflation forecasts, they're only zero
point three reduction CPI will that give Governor Andrew Bailey
a chance to cut in December? Marginal I think she
should have been a bit more aggressive on the inflation,
didn't get that bank of him and rate cut, possibly
another one again in February, get the debt interest bill down.
(15:13):
Guilty altill have loved it. So she could have done better,
but she could have done also a lot worse.
Speaker 1 (15:20):
Alex, I want to ask you about the thing which
got the biggest cheer from the chance that one of
the biggest spending commands, probably biggest spanding commitment was scrapping
the two child cap. Now, Kemmy Baidenock was pretty robust
on this. She says it was a budget for benefits.
Street says, hiking taxes to pay for welfare. I just
wanted to clean this is please labor backventures, but it
doesn't affit many people. It's a lot of money for
people who want benefits, some of whom are working in fairness.
(15:43):
How is this going to go down politically? Is there
a dangers to this that it may actually end up
being a political loser rather than the political winner.
Speaker 6 (15:50):
Yeah, And you know, I just want to read you
that this really quite astonishing statistic that over the next
five years the OBR is forecasting welfare spending in Britain
will rise by seven and three billion pounds to four
hundred and six billion pounds. And you know it is
a question is kemmy Baidino was making out there a
(16:10):
question of what does labor want this country to look like?
Does it want it to be a pro gross boosting
productivity competitive country, as she made out in the election
and has done at every opportunity up until she came
under extreme political pressure from her own party, or does
(16:31):
it want it to be a high tax country with
a large welfare state and more typically in the labor mold.
And what kiss Arma and Rachel Rude appear to have
done is thrown off some of those pro gross gross
being the number one mission living you know, all of
that stuff that they used to say towards a more
(16:54):
typical labor you know, slated policies that may please the part,
but you have to wonder, you know, why have they
done that? Have they done it because the public finances
are in much of a better state. Well, I think
it's mainly about politics, isn't it. They saw the danger
that they were facing and they basically to be blunt
tilted to the left. And again that may be something
(17:16):
that investors look at with skepticism. Is it even enough
to get labor MPs on side where they might decide
that if that's the direction they want to go in,
why don't they get somebody who sort of really believes
that stuff in to do the job.
Speaker 4 (17:29):
Rosa in terms of then the flip side of that,
the kind of idea of soaking the rich, of the
wealth tax, of the tax on mansions, there is a
question mark about whether these constitute wealth taxes and what level,
what gradation of rich individual or rich business person they're
going to hit, and whether that has political consequences or not.
(17:53):
Once you're thinking about middle classes versus wealth taxes, because
again that that's also going to be quite a big
takeaway for voters. I think surely when they look at
this budget.
Speaker 3 (18:04):
Yeah, I mean, if.
Speaker 7 (18:05):
You ask voters, they all say, yeah, we want to
tax the rich. When you look at the receipts of
what that actually means, it's less clear that that brings
in enough to make a difference. And also, as we've
written about often at Bloomberg, the impact of the very
wealthy leaving the country, taking their money out of Britain.
And I think the message was got through to Rachel
(18:28):
Reason the run up to the budgets that it risks
sort of tipping over. There had been a lot of
speculation that there would be some kind of banking tax
which didn't come to fruition. She actually sort of caused
some smiles because apparently she was going around saying or
the Treasury was to the banks, well, you need to say,
this is a really good budget to make up for
the fact that I'm not taxing you. So yeah, I mean,
(18:51):
I think both on Welsh taxes and on the two
child poverty limit, it's kind of a sign of her
weakness that she's being directed on both of these huge
issues by her own backbenches, and not a very healthy
sign going forward.
Speaker 1 (19:08):
The Marcus. How significant is the backloading? Backloading doing a
lot of heavy lifting. Us need to remember criticism of
Jeremy Hunt for this and other chances. But the Obi
says that borrowing over the next three years is actually
an increase by twenty one billion pounds over the next
three year is only when the threshold freezes come in
after twenty twenty eight the borrowing actually starts to fall.
(19:31):
What do you think markets were making of that, of
that backloading.
Speaker 8 (19:34):
Well, it's in some senses they're not hitting growth as
hard earlier, they're backloading that, so it's one for the other.
So I think the real worry here, as I think,
as Alex points out, is that whether this falls apart
on the fact that this is a classic socialist tax
and spend budget, and whether or not the markets feel
(19:57):
that this is ruinous for growth longer run. There are
some nasty things about quite how much q is going
to cost That could be a nasty thing comes back
out adding extra sort of thirty billion on the cost
of QE twenty one billion per year going basically to
the Bank of England.
Speaker 3 (20:17):
So this could fall apart.
Speaker 8 (20:19):
I'm not saying it's going to but there is a
serious risk at some point that the markets will go
do you know what? This is not a competent economic
package which will deliver growth sustainably, And that the fact
that the numbers only add up by a lot of
backload and stuff in twenty eight, twenty nine thirty which
may not ever come about. We don't believe the numbers.
(20:39):
We can see the welfare spending coming right here, right now,
and that's the risk really. Whether or they can get
it through.
Speaker 4 (20:47):
And whether that happens in three days or three months
depends on the budget. We've seen different things happen with
different budgets about how long it takes in.
Speaker 8 (20:55):
It should be loving this, It's quite liking it, but
it should be absolute loving it. You should see the
guilt curve flatten. You should be expecting rate cuts coming
for sure. We're not getting that confidence yet, but so
we'll see what the final vad is. But you know,
at the moment, stop market likes that. I think everyone
wants to sound to rally, so maybe she'll get away
(21:15):
with it.
Speaker 4 (21:16):
Alex Is Rachel reeves more or less in danger post budget.
Speaker 6 (21:22):
I think Look, there was a lot of noise over
the last few weeks about Kiirs Starmer's position, in Rachel
Reeves's position, and a lot of that noise came from
number ten because they were going around turned everybody old,
kis Starmer's going to fight fight down any any leadership challenge,
and you know, daring his opponents out of the woodwork,
all of that stuff. You know, I think it is
(21:43):
hard to see how immediately there is a threat to
either Rachel Reeves or Kiss Starmer. As we've been talking about,
you know, so far caveat, that's so far. The markets
are okay. That's the that's the main hurdle to clear
is no adverse mark reaction. See what happens over the
coming days. Is there a tax rise or spending change
(22:06):
that goes wrong and emerges as can happen as we've
seen happen with previous budgets, that comes out over the
next twenty four hours, which suddenly everybody gets very upset about. Potentially,
there were so many tax risers in there, it is
quite possible that one of them looks worse than first
thought in the small print and becomes controversial. But if
I had to bet right now, I would still on
(22:27):
the side of we are probably going to still have
kid Starma and Rachel Reeves in post in the coming days,
weeks and months ahead.
Speaker 1 (22:36):
Thanks, I'm going to put you all on the spot
with a quick fire. I want you to give you
mark's out of ten for the Chancellor's budget.
Speaker 8 (22:44):
Marcus, Oh, please come to me last. I'm going to
have to give us six and a half because I
think it's it compared to what we're expecting. It's a
lot better than perhaps it could have been. I think
delivery from start to finish was terrible, so I can't
(23:04):
give anything close to the higher marks than that. But
I think overall, she's going to get away with a
green ex. I think she stays in power for a
bit longer.
Speaker 3 (23:12):
Rosa, Yeah, I'm in that same territory.
Speaker 7 (23:15):
I'd say about a six, mainly because it was kind
of so in a funny way. The actual budget was
sort of drama free with everything that surrounded it that
I'm into my minus figures.
Speaker 4 (23:27):
With minus I know I should we should have separated
it out really the actual fact and the delivery. But Alex,
overall budget school.
Speaker 6 (23:36):
I'm afraid I can't give it more than a five. Look,
you know she's got through looks like she's got through
the day weeks months ahead. But really, should we not
want a bit more from our government than that, you know,
should we not want more of a plan and a
strategy for the economy and for the country rather than survival.
You know, I'm not long ago people in the government
(23:57):
were briefing me about how they wanted to do a
big bowl budget that was going to you know, really
shake up the tax code and you know, make some
big changes that made the country better and gave markets
a lot of confidence going forward about the public finances.
All this sort of stuff that sounded quite good. They
obviously decided instead to do this smagas board approach out
(24:19):
of political desperation. Yeah, maybe enough to get them through,
but you know, not much more than that.
Speaker 1 (24:25):
So a budget to get by serling. The markets seem
to have accepted the budget. If not, you couldn't quite
say they've embraced it. That's our top team of Bloomberg
Budget Voices Alex Alex wickm my political editor and from
Bloomberg Opinion. I you could commentate with Rosa Prince and
Marcus Ashworth. It covers European markets for Bloomberg Opinion.
Speaker 4 (24:45):
Yeah, it was a real day where you know, dropped
sandwhich is a massive rush as we got the data
the Obihar package landing early before the Chancellor had stood up.
It was a surprise. Let's see though, how voter and
investors actually think about this over the next few days.
That was our special Bloomberg coverage on the UK budget.
(25:06):
Thank you so much for listening. I'm Caroline HEPKEA and
I'm new and Potts.
Speaker 1 (25:09):
This is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
It is my understanding that the Office of Budget Responsibilities
Economic and Financial Outlook was released on their website before
this statement.
Speaker 3 (00:18):
This is deeply.
Speaker 2 (00:19):
Disappointing and a serious error.
Speaker 3 (00:21):
On their parts.
Speaker 4 (00:22):
That was the UK Chancellor Rachel Reeves. Hello, I'm Caroline Hepke,
I'm you and.
Speaker 1 (00:27):
Pots Hello and welcome to this Bloomberg UK Budget podcast special. Now.
In twenty twelve, it was the omni Shambles. In twenty
twenty two, it was that disastrous mini budget. Well, maybe
this year's budget will become known as the pre release
shambles after the economic analysis of the budget and all
of the headline tax measures were posted online by accident
(00:47):
on the obi's website more than thirty minutes ahead of
Rachel Reavey's speech, a chaostic disruption for which the OBR
had to swiftly apologize.
Speaker 4 (00:56):
Well, in a moment, we're going to bring you reaction
to the budget itself from our political editor Alex Wickham,
as well as analysis from Bloomberg opinion writers Marcus Ashworth
and Rosa Prince. We'll dig into the numbers in the
way that only Bloomberg can do. With our UK chief
economist Dan Hanson.
Speaker 1 (01:13):
Will of course discuss that unprecedented situation which saw the
Chancellor's carefully choreographed speech front run, leaving markets scrambling to
react in just a moment and Caroline in terms of
announcements though made by Rachel Reeves and before that at
the OBR, there was a lot, wasn't there.
Speaker 4 (01:28):
Yeah, huge number of headlines. So the Chancellor is raising
taxes by nearly thirty billion pounds and keeping income tax
thresholds frozen for longer. She's lowering the cash portion of
iSER tax free savings allowances and other considerable measure There'll
also be a tax on homes worth more than two
million pounds from twenty twenty eight. Then there's the increased
(01:51):
tax on dividends, property and savings. Also the removal of
the two child benefit cap for universal Credit, which is
a type of benefit. There's a mileage tax for electric vehicles,
and then there are also changes a reduction to the
benefits that you get from sacrificing some of for your
salary into pensions, a whole load of different tax changes.
(02:15):
Here's the Chancellor, Rachel Reeves just giving her take and
some of the measures that she outlined.
Speaker 2 (02:22):
This labor government is changing our country in the base
of challenges on our productivity. I will grow our economy
through stability, investment and reform. I've met my fiscal rules
and built our economic resilience for the future. I have
asked everyone to contribute yes for the security of our
(02:42):
country and the brightness of its future. But I have
kept that contribution as low.
Speaker 3 (02:48):
As possible by reforming.
Speaker 2 (02:50):
Our tax system, making it fairer.
Speaker 3 (02:53):
And stronger for the future.
Speaker 2 (02:55):
I have protected our NHS, maintaining public investment and having
efficiency in government spending. I've taken action on our broken
welfare system, routie out waste and lifting children.
Speaker 3 (03:08):
Out of poverty. And I have cut the cost of
living with.
Speaker 2 (03:14):
Money off bills and prices frozen, all while keeping every
single one of our Manifesto commitments.
Speaker 4 (03:23):
So that was the Chancellor, Rachel Reeves. The opposition Conservative
leader Kemmy Baynock then gave a response after that speech
from Rachel Reeves that lasted well over an hour. It
was a hard hitting response calling for the Chancellor to resign.
Speaker 1 (03:38):
Well, let's dig into the numbers now are UK Chief
economist Dan Hansen has jumped into the studio of Dan.
You've had a little bit more time than usual two
digest the figures as of all of us with the
obr's massive blunder, what did you make over all about
with the budget and that particularly that extra headroom we've
got from the Chancellor.
Speaker 5 (04:00):
In of itself, it's good news, isn't it. Twenty two
billion pounds is more than nine point nine billion pounds,
so taking up face value, it is good news. I
think what what I'm looking at and what we've been
looking at sort of as we're trying to sort of
take on board the OBR document, we were absolutely not
ready for that whatsoever. But I think we're sort of
back on track now that a lot of the pain
(04:22):
is backloaded, so the tax rises are backloaded in the
near term, there's actually a little fiscal giveaway which lower
CPI inflation through a feel duty freeze and freezing energy bills.
All of that was pretty much expected, and I think
the backloading was probably expected as well. And the question
that comes from delaying tax increases or pushing the pain
(04:43):
into the latter years of the parliament, when you're thinking
of it from a political perspective, is will it actually
be delivered, and so there's a question you've got this
sort of these two forces weighing on the UK's physcal
credibility in this budget. On the one hand, you've got
more headroom. We've all been asking for that, wanting that,
the markets have been wanting that. But on the other hand,
(05:04):
you've delivered it in a way that doesn't look as
credible as it could, say, had you raised, for example,
the basic rate of income tax or something like that.
So I mean, just on the point of why we
got that league a couple of weeks ago, it's quite
clear now looking at the OBR forecast why. It's because
they handed Reeves a much better than expected I think
(05:28):
fiscal forecast. So the fiscal deterioration was not that large.
It was about six billion pounds at the end of
the forecast thirteen billion pounds if you take into account
the policy U turn, so that is about half what
people were expecting. So she has been able to bring
this headroom up, probably by doing a little bit less
(05:50):
than she feared she might, which is why we've had
that U turn on income tax.
Speaker 4 (05:54):
Yeah, taxes overall though are going to go buys almost
thirty billion pound as you say, there will be more
leeway for the chancellor twenty two billion pounds in terms
of the fiscal headroom. Growth has been downgraded by the OBR,
Inflation a little bit higher overall. Is it going to
(06:15):
end up being a credible budget, one that sticks, one
that can be delivered? I know that's quite a big
thought in terms of how this budget is going to
be digested by investors.
Speaker 5 (06:28):
Yeah, so I think I think if the I mean,
let's just put aside the fact that the forecast got
published completely at the wrong time. But if you look
at the shape of the obr's forecast now, I would
say it looks much more realistic than it did, say
in March, or has done in past forecasts. So that's
a tick in the obr's box. Obviously, the pre relelye
(06:49):
or the release of it early is a is a big,
a big error, and that'll be the focus. But actually,
if you look at the shape of the forecast, they've
up there, They've lowered their growth forecast, they've up their
inflation forecasts slightly, and that's due to stronger wage growth.
We thought that was going to be the case that
they would do something like that, So all of those
things taken together. If I look at their forecast now,
(07:10):
and if you look at it relative to the consensus forecast.
For example, our react on the terminal has a chart
showing this, you know they're right close to consensus now.
They're not outside of the basically the band of all
external forecasters, right at the top of the range, which
is just not the right place to be as a
fiscal forecaster. Where the credibility question comes in is the
(07:32):
policy response to that, Because as I say, the fiscal
deterioration wasn't quite as bad as first thought. Reads has
been able to do the sort of stealth tax approach,
if you like, by delaying the pain. So I think
there's probably on the credibility as I say, setting aside
the early release of the forecast, on the credibility front,
looking at the obr's forecast, it looks more realistic. That's
(07:55):
a big tick. But as I say, there are question
marks I think at least about about the policy package
in terms of will it actually be delivered with an
election on the horizon or you know, August twenty twenty nine,
it's due by then, a lot of these policies will
be biting at that point, so there's a real question
mark there, so.
Speaker 1 (08:12):
It concerns about the credibility of the numbers. I just
wanted to just ask you about what the situation was
like where you're sitting in the newsroom when these numbers
came through. How much of a shot was it to you,
and how did you deal with it?
Speaker 5 (08:29):
Well, I used to I mean the OBR, I said
to Anna Edwards on television, as this sort of happened.
This has never happened before. The OBIS are very secretive organization,
They're very good at this sort of thing. There's never
a leak. We were ready to obviously respond to Rees's
speech rather than the OBR document, which has got so
(08:49):
many details in it, so it's a very different sort
of test of your mental acumen. The speech sort of
delivers high level numbers and you can try and piece
something together. The OBR document doesn't lie about the numbers
because it's all there in black and black and blue
and a little bit of white.
Speaker 1 (09:06):
So it.
Speaker 3 (09:09):
Was a bit of a shock.
Speaker 5 (09:11):
As I said at the start, we feel like we're
just about back on track now, but we're going to
be as everyone will be digesting this this afternoon. I
think you know, if I'm going to say the high
level high level points are it's probably about as expected.
She boosted the head room, perhaps a little bit more
than expected. She lowered CPI inflation in the near term.
(09:31):
We thought she'd do that, and she still laid the
pain with the tax measures. And that seems pretty much
what the consensus was going into the going into it,
and you've seen from the market reaction hasn't been huge,
so that you know, and if anything has been marginally positive, okay, but.
Speaker 4 (09:48):
It was certainly confused and the Office of Budget Responsibility
had to apologize for releasing the data early, well before
the Chancellor even stood up, and so that was quite
a scramble in some fusion really in markets. Thank you
so much, Dad for being with us. Bloomberg's UK Chief economist,
Dan Hanson my thanks to you. Now let's bring in
the rest of our top team, our Bloomberg Budget Voices,
(10:10):
our political editor Alex Wickham from Bloomberg Opinion, our UK
commentator Rosa Prince, and last but not least, Marcus Ashworth,
who covers European markets for Bloomberg Opillion. Alex Wickham, straight
to you, I was reading what you were putting out
as we were all watching charts of Rachel rees You
talked about it being chaotic at the beginning with the
(10:33):
release of the OBR figures early. What did you make
overall of the budget.
Speaker 6 (10:39):
Yeah, it's always a nightmare when you're impressibonche getting your
lunch and your editor rings humans get back to your
desk immediately. Yeah, that was one of those things. I mean, look,
there are some winners from this budget. It may be
enough to get Rachel Reeves and Kissed Arma through the day,
through the week, which is their main ask at the minute.
That's how badly things have been going for them. There
(11:00):
is that higher than expected HEAVEM twenty two billion, which
so far, so far seems to have kept markets largely calm.
There is stuff in there for Labour MPs to waive
their papers in the Commons Chamber in delight over things
like removing the two child benefit cap, lifting hundreds of
thousands of children out of poverty. There are wins for
pensioners with the state pension going up, for low earners
(11:21):
with the minimum wage going up. Those are Labour policies
that will keep Labour's core vote happy. But there is
so much bad news in there that will over the
coming days leave investors and labour MPs and voters all
wondering about the future for Britain. Really, when you see
living standards rising more slowly than expected, that's not good news.
When living standards are in grasing living standards. Raising living
(11:43):
standards are the core aim of this government, along with
economic growth, which is downgraded, the tax burden hitting an
all time high, as the welfare bill still soares. There
are lots of painful things in this budget that will
make people doubt over the coming days and weeks whether
this government has the right plan for the future.
Speaker 1 (12:02):
I want to ask you to dig into some of
the detail of this because we've had so many kites.
It kind of feels like every kite in the kite
shop was sort of released over the over the last
few months.
Speaker 3 (12:13):
Just tell us that were there.
Speaker 1 (12:14):
Any nasty surprises, was anything that we weren't expecting in
this budget? What do you think? What do you think
more the political narrative be over the coming weeks as
we digest this.
Speaker 7 (12:25):
Yeah, well, I mean I'm sure over the next hours
and days people will be going through the figures and
finding out if there are any sort of niche surprises.
But I think it's more rather than of the little surprises.
I think it's more the kind of bald fact which
faces you when you actually look at the overall budget
of the tax burden going up. I mean, you know,
we are now on a trajectory where we're at thirty percents,
(12:48):
really high, you know, historically high levels. And I think that,
as Alex said, that's something which we'll get we'll move
on from this budget will kind of to somecent forget
about all the chaos and the or but that will
be something that day in day out, will will be
felt in voters pockets now as they think about spring
elections coming up further down line a few years time
(13:09):
of general election. I think that will have a lasting impact.
Speaker 4 (13:13):
Okay, well, the Chances are saying I'm asking everyone to
make a contribution. That's her view, the opposition leader saying
it's time for the Chances to resign, that she should go.
It did feel very stark, and I think actually some
of the issues for the UK that have been so
pent up really emerged in this budget, didn't they Marcus.
(13:34):
It's not something that investors were in much doubt about.
They know this, how are they going to react to it?
Speaker 1 (13:41):
Well?
Speaker 8 (13:41):
I think short term, me am I going to relief Roley.
This is not quite a defeat snatch from the jaws
of victory, because the OBR have given her a much nicer,
happier layout than she could have had, and certainly she
was trailing. I don't know what that's all about, but
she'd have known about this by the end of October.
So some very strange politics going on. That's the overall
level of competence, which initially why guilt yields rose. However,
(14:04):
the guilt yield, particularly long end, is falling as it
should do. It should fall a lot more. She may
not get as big a benefits she could and could
have out of this budget, so long end guilt supplies falling,
which is good news, I guess overall for the influence
of that dead interest bill, which is one of the
big killers. So I think, you know, this isn't as
(14:27):
bad as it could have been. A lot of it
is backloaded, and this is the real problem. No one's
going to quite believe that she is going to raise
these taxes. Certainly things like this mansion tax, the salary
sacrifice stuff. None of it makes much sense. I don't
think it raised very much. And it's a double hit
on employers. She's hitting landlords again, she's hitting savers at
dividend payments for you know, entrepreneurs. This is anti growth
(14:51):
and that's where the gawngrade of ovr's growth forecast is worrying.
And an upgrade in their inflation forecasts, they're only zero
point three reduction CPI will that give Governor Andrew Bailey
a chance to cut in December? Marginal I think she
should have been a bit more aggressive on the inflation,
didn't get that bank of him and rate cut, possibly
another one again in February, get the debt interest bill down.
(15:13):
Guilty altill have loved it. So she could have done better,
but she could have done also a lot worse.
Speaker 1 (15:20):
Alex, I want to ask you about the thing which
got the biggest cheer from the chance that one of
the biggest spending commands, probably biggest spanding commitment was scrapping
the two child cap. Now, Kemmy Baidenock was pretty robust
on this. She says it was a budget for benefits.
Street says, hiking taxes to pay for welfare. I just
wanted to clean this is please labor backventures, but it
doesn't affit many people. It's a lot of money for
people who want benefits, some of whom are working in fairness.
(15:43):
How is this going to go down politically? Is there
a dangers to this that it may actually end up
being a political loser rather than the political winner.
Speaker 6 (15:50):
Yeah, And you know, I just want to read you
that this really quite astonishing statistic that over the next
five years the OBR is forecasting welfare spending in Britain
will rise by seven and three billion pounds to four
hundred and six billion pounds. And you know it is
a question is kemmy Baidino was making out there a
(16:10):
question of what does labor want this country to look like?
Does it want it to be a pro gross boosting
productivity competitive country, as she made out in the election
and has done at every opportunity up until she came
under extreme political pressure from her own party, or does
(16:31):
it want it to be a high tax country with
a large welfare state and more typically in the labor mold.
And what kiss Arma and Rachel Rude appear to have
done is thrown off some of those pro gross gross
being the number one mission living you know, all of
that stuff that they used to say towards a more
(16:54):
typical labor you know, slated policies that may please the part,
but you have to wonder, you know, why have they
done that? Have they done it because the public finances
are in much of a better state. Well, I think
it's mainly about politics, isn't it. They saw the danger
that they were facing and they basically to be blunt
tilted to the left. And again that may be something
(17:16):
that investors look at with skepticism. Is it even enough
to get labor MPs on side where they might decide
that if that's the direction they want to go in,
why don't they get somebody who sort of really believes
that stuff in to do the job.
Speaker 4 (17:29):
Rosa in terms of then the flip side of that,
the kind of idea of soaking the rich, of the
wealth tax, of the tax on mansions, there is a
question mark about whether these constitute wealth taxes and what level,
what gradation of rich individual or rich business person they're
going to hit, and whether that has political consequences or not.
(17:53):
Once you're thinking about middle classes versus wealth taxes, because
again that that's also going to be quite a big
takeaway for voters. I think surely when they look at
this budget.
Speaker 3 (18:04):
Yeah, I mean, if.
Speaker 7 (18:05):
You ask voters, they all say, yeah, we want to
tax the rich. When you look at the receipts of
what that actually means, it's less clear that that brings
in enough to make a difference. And also, as we've
written about often at Bloomberg, the impact of the very
wealthy leaving the country, taking their money out of Britain.
And I think the message was got through to Rachel
(18:28):
Reason the run up to the budgets that it risks
sort of tipping over. There had been a lot of
speculation that there would be some kind of banking tax
which didn't come to fruition. She actually sort of caused
some smiles because apparently she was going around saying or
the Treasury was to the banks, well, you need to say,
this is a really good budget to make up for
the fact that I'm not taxing you. So yeah, I mean,
(18:51):
I think both on Welsh taxes and on the two
child poverty limit, it's kind of a sign of her
weakness that she's being directed on both of these huge
issues by her own backbenches, and not a very healthy
sign going forward.
Speaker 1 (19:08):
The Marcus. How significant is the backloading? Backloading doing a
lot of heavy lifting. Us need to remember criticism of
Jeremy Hunt for this and other chances. But the Obi
says that borrowing over the next three years is actually
an increase by twenty one billion pounds over the next
three year is only when the threshold freezes come in
after twenty twenty eight the borrowing actually starts to fall.
(19:31):
What do you think markets were making of that, of
that backloading.
Speaker 8 (19:34):
Well, it's in some senses they're not hitting growth as
hard earlier, they're backloading that, so it's one for the other.
So I think the real worry here, as I think,
as Alex points out, is that whether this falls apart
on the fact that this is a classic socialist tax
and spend budget, and whether or not the markets feel
(19:57):
that this is ruinous for growth longer run. There are
some nasty things about quite how much q is going
to cost That could be a nasty thing comes back
out adding extra sort of thirty billion on the cost
of QE twenty one billion per year going basically to
the Bank of England.
Speaker 3 (20:17):
So this could fall apart.
Speaker 8 (20:19):
I'm not saying it's going to but there is a
serious risk at some point that the markets will go
do you know what? This is not a competent economic
package which will deliver growth sustainably, And that the fact
that the numbers only add up by a lot of
backload and stuff in twenty eight, twenty nine thirty which
may not ever come about. We don't believe the numbers.
(20:39):
We can see the welfare spending coming right here, right now,
and that's the risk really. Whether or they can get
it through.
Speaker 4 (20:47):
And whether that happens in three days or three months
depends on the budget. We've seen different things happen with
different budgets about how long it takes in.
Speaker 8 (20:55):
It should be loving this, It's quite liking it, but
it should be absolute loving it. You should see the
guilt curve flatten. You should be expecting rate cuts coming
for sure. We're not getting that confidence yet, but so
we'll see what the final vad is. But you know,
at the moment, stop market likes that. I think everyone
wants to sound to rally, so maybe she'll get away
(21:15):
with it.
Speaker 4 (21:16):
Alex Is Rachel reeves more or less in danger post budget.
Speaker 6 (21:22):
I think Look, there was a lot of noise over
the last few weeks about Kiirs Starmer's position, in Rachel
Reeves's position, and a lot of that noise came from
number ten because they were going around turned everybody old,
kis Starmer's going to fight fight down any any leadership challenge,
and you know, daring his opponents out of the woodwork,
all of that stuff. You know, I think it is
(21:43):
hard to see how immediately there is a threat to
either Rachel Reeves or Kiss Starmer. As we've been talking about,
you know, so far caveat, that's so far. The markets
are okay. That's the that's the main hurdle to clear
is no adverse mark reaction. See what happens over the
coming days. Is there a tax rise or spending change
(22:06):
that goes wrong and emerges as can happen as we've
seen happen with previous budgets, that comes out over the
next twenty four hours, which suddenly everybody gets very upset about. Potentially,
there were so many tax risers in there, it is
quite possible that one of them looks worse than first
thought in the small print and becomes controversial. But if
I had to bet right now, I would still on
(22:27):
the side of we are probably going to still have
kid Starma and Rachel Reeves in post in the coming days,
weeks and months ahead.
Speaker 1 (22:36):
Thanks, I'm going to put you all on the spot
with a quick fire. I want you to give you
mark's out of ten for the Chancellor's budget.
Speaker 8 (22:44):
Marcus, Oh, please come to me last. I'm going to
have to give us six and a half because I
think it's it compared to what we're expecting. It's a
lot better than perhaps it could have been. I think
delivery from start to finish was terrible, so I can't
(23:04):
give anything close to the higher marks than that. But
I think overall, she's going to get away with a
green ex. I think she stays in power for a
bit longer.
Speaker 3 (23:12):
Rosa, Yeah, I'm in that same territory.
Speaker 7 (23:15):
I'd say about a six, mainly because it was kind
of so in a funny way. The actual budget was
sort of drama free with everything that surrounded it that
I'm into my minus figures.
Speaker 4 (23:27):
With minus I know I should we should have separated
it out really the actual fact and the delivery. But Alex,
overall budget school.
Speaker 6 (23:36):
I'm afraid I can't give it more than a five. Look,
you know she's got through looks like she's got through
the day weeks months ahead. But really, should we not
want a bit more from our government than that, you know,
should we not want more of a plan and a
strategy for the economy and for the country rather than survival.
You know, I'm not long ago people in the government
(23:57):
were briefing me about how they wanted to do a
big bowl budget that was going to you know, really
shake up the tax code and you know, make some
big changes that made the country better and gave markets
a lot of confidence going forward about the public finances.
All this sort of stuff that sounded quite good. They
obviously decided instead to do this smagas board approach out
(24:19):
of political desperation. Yeah, maybe enough to get them through,
but you know, not much more than that.
Speaker 1 (24:25):
So a budget to get by serling. The markets seem
to have accepted the budget. If not, you couldn't quite
say they've embraced it. That's our top team of Bloomberg
Budget Voices Alex Alex wickm my political editor and from
Bloomberg Opinion. I you could commentate with Rosa Prince and
Marcus Ashworth. It covers European markets for Bloomberg Opinion.
Speaker 4 (24:45):
Yeah, it was a real day where you know, dropped
sandwhich is a massive rush as we got the data
the Obihar package landing early before the Chancellor had stood up.
It was a surprise. Let's see though, how voter and
investors actually think about this over the next few days.
That was our special Bloomberg coverage on the UK budget.
(25:06):
Thank you so much for listening. I'm Caroline HEPKEA and
I'm new and Potts.
Speaker 1 (25:09):
This is Bloomberg
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