44. Weekly Newsletter
UK Tax Rises
The PM (Sunak) and his Chancellor (Hunt) are said to be exploring tax increases and public spending cuts in a bid to fill the gap in public finances. The budgetary tightening of around £50bn is necessary due to the weak economic forecast delivered last week by the Office for Budget Responsibility. In context, this equates to around 2% of GDP and equals the scale of the austerity Budget of 2010. PM Sunak has warned of the “profound economic crisis” facing the UK which his Chancellor labelled as requiring “eye-wateringly difficult” decisions on public finances.
The £50bn target comes from the Treasury estimate of an initial fiscal hole of £30-40bn but the spending cuts will likely negatively impact the economy. As such, the Treasury plans to create further fiscal headroom to allow for the possibility of the economy underperforming which then reaches the total £50bn of tax rises and spending cuts. Officials have warned Britain’s leadership that economic growth will be depressed due to ongoing supply chain bottlenecks and high energy prices. The Chancellor will unveil the Autumn Budget on the 17th of November.
Newspapers & Politics
The UK’s front page news cycle over the last seven days have focused on a wide range of stories. There has been coverage over the former PM Liz Truss’ phone being hacked by Russia and the challenges to the continuation of the costly triple lock pension. Additionally, the new PM and Home Secretary are working to reduce the number of migrant dinghy crossings from France across the dangerous English Channel. Some of the newspaper front pages over the last week were:
- The Guardian: Ministers accused of ‘wild west’ attitude to UK’s national security
- Daily Express: Horror Petrol Bomb Attack On Migrant Centre
- Daily Mirror: NHS Is Facing Worst Winter On Record
- The Sunday Times: Tory green tsar attacks Sunak for Cop27 snub
- The Sun: Wills Not Going To Qatar (Prince William not attending World Cup)
- The Daily Telegraph: PM plans to expand windfall tax grab
- The Independent: Cuts warning as Sunak rips up Truss growth plan
In politics, the new PM has nationally increased the popularity of the ruling Conservative Party after a sustained low performance in polling during recent months. The opposition party (Labour) maintain an higher favourability on most key issues but the new Sunak government has regained the title of being the first preference to manage the economy. Additionally, there has been a return in support to the Conservative Party as during the Truss tenure 41% of Conservative voters chose the party- the figure now stands at 88%.
Banking Windfall Taxes
The UK’s banking sector performed strongly in Q3 with Barclays experiencing soaring trading revenues and pre-tax profits rising 6% YoY. Standard Chartered’s profits increased 40% to $1.4bn and HSBC experienced a rise to $6.5bn (up from $5.5bn). However, due to this higher performance it is possible that they may be subject to windfall taxes to fill current government spending gaps. The Autumn Statement (due on 17th November) will outline these details to the public.
Similar steps have already been introduced in Hungary and Spain has introduced proposals for a potential two year levy on banks. However, concerns have been raised that the UK would become a less competitive place to do business for banks if windfall taxes are introduced. UK Finance has outlined that with the existing taxes (scheduled to increase in April 2023) that London will be already more expensive than New York, Dublin, Amsterdam and Frankfurt by 2024. Banks in the last tax take (in the year to March) accounted for 4.7% of government revenues with payments totalling £38.8bn.