Tax hikes targeting wealth have become more likely because of the spike in the UK’s borrowing costs, experts have said.
Economists and City figures warned that Andy Burnham and his Chancellor John Healey would have to raise taxes by up to £15bn in the Budget to restore depleted fiscal buffers.
One even claimed the Prime Minister faced a Liz Truss-style “market meltdown” unless he got a “grip” on the UK’s bond prices.
Personal finance
Pension dashboard deadline nears – what it means for you
Pension schemes and providers have until the end of October to connect to a “dashboard” system allowing workers to monitor their retirement savings.
Crucially, the 31 October deadline applies only to companies and providers, rather than savers themselves. Consumers do not need to take any action.
Everything you need to know
- Each provider must connect to the information-sharing system by the end of next month. People will also be able to see their state pension details in the same place.
- The move is part of wider changes in the pension system being brought in by Labour which will include value for money assessments.
Pension performance league tables
Ministers are planning a system for scrutinising pension performance using a new Value for Money framework.
- Schemes will be rated by 2029 in a league table based on their investment performance, charging levels and quality of service.
- The poorest performing schemes will be required to improve or face closure.
- From 2029, providers will be expected to present savers with a single retirement income option which would combine all savings. Retirees would still be free to choose other options.
Recent rain has brought welcome respite for plants and trees but the arrival of the El Niño – predicted to be the strongest in living memory – represents a new threat to parched gardens.
Everything you need to know
- El Niño is the naturally occurring climate phenomenon caused by raised ocean temperatures that builds in the Pacific.
- The phenomenon occurs every two-seven years and is when east to west trade winds weaken or reverse.
- The Met Office has warned that this year’s El Niño is set to be unprecedentedly strong and the UK could be hit by a wet and stormy autumn and early winter.
The system usually brings wetter or colder winters in the UK with experts warning that trees are particularly vulnerable because the summer drought may have weakened both root systems and hindered water absorption in branches.
Heavy rainfall on soil which is still dry from the summer drought could cause flash flooding well into the autumn. Trees could be affected by “cavitation” – a condition whereby air bubbles stop water flow within the trunk and branches.
What to do
Heat-loving Mediterranean plants should be moved indoors and drains cleared.
Pack away patio furniture sooner rather than later.
The drugs found to slow ageing – you might already be taking them
Weight-loss jabs such as Wegovy may be slowing the ageing process as well as helping people to shed unwanted pounds, a study has found.
Research found that mice at a healthy weight who were given Wegovy lived 12 per cent longer – equivalent to a person living to 93 instead of 83.
What you need to know
- Scientists looked at the effects of semaglutide – the active ingredient in Wegovy – on senescence, the process by which cells stop multiplying to regenerate tissues.
- The findings suggest that as well as suppressing appetite, the drug reduces inflammation, DNA damage and senescence. More than 2m Britons are thought to be taking a weight-loss medication.
- The result could be that the slimming drug will one day be used as an anti-ageing pill for everyone – regardless of weight.
The bad news
There are over the idea that the first true anti-ageing drugs have arrived. Most studies into the phenomenon have and scientists have reservations about the same findings applying to humans.
Research into calorie restriction – a radical anti-ageing strategy – has found that while the effects can be dramatic in creatures such as worms or flies, they are at best marginal in more complex animals such as monkeys. Scientists say more research is needed.
The bad news
There are over the idea the first true anti-ageing drugs have arrived. Most studies into the phenomenon have and scientists have reservations about the same findings applying to humans.
3 min read
The bad news
There are over the idea that the first true anti-ageing drugs have arrived. Most studies into the phenomenon have and scientists have reservations about the same findings applying to humans.
3 min read
4 min read
The borrowing costs of governments around the world have jumped in recent days after renewed hostilities between the US and Iran pushed up energy prices, leading to expectations that inflation, and therefore interest rates, will be higher for longer.
Why Britain’s cost of borrowing is higher
While the phenomenon is global, Britain’s cost of borrowing is higher than many comparable economies, with the country seen as particularly vulnerable to elevated gas prices and questions still lingering about how Burnham will manage the public finances.
The interest rate on UK government bonds – known as “gilts” – has hit levels not seen in decades. The rate – or “yield” – on 10-year gilts is at its highest level since 2008, while the yield on 30-year gilts is at its highest since 1998.
This essentially makes it more expensive to service Britain’s debt. Economists said that higher debt interest payments would eat into the “headroom” – the spare cash which the Government holds against its fiscal rules – by as much as £15bn, meaning Burnham and Healey will likely have to raise taxes in the Budget on 28 October.
At the same time, Healey will have to find money to cover a £4.7bn gap he was left by his predecessor Rachel Reeves in the funding of the Defence Investment Plan, as well as set out the detail of how cost of living support measures such as cutting VAT on electricity bills will be paid for.
Professor Edward Jones, senior lecturer in economics at Bangor University, told The i Paper that “further fiscal tightening” – tax rises or spending cuts – in the Budget “is now increasingly likely if borrowing costs remain around current levels”.
“The combination of higher debt-interest costs, relatively weak growth and limited existing fiscal headroom makes further action increasingly difficult to avoid.”
He said that “somewhere in the region of £10–15bn” may be required, “although I would not expect all of that necessarily to come through higher taxation”.
Ruth Gregory, the deputy chief UK economist at Capital Economics, told The i Paper: “Back in March, the Chancellor [Reeves] had headroom of £24bn against the main fiscal rule [requiring day-to-day spending to be covered by tax receipts by 2029-30].
“Since then, the rise in market interest rates have reduced this headroom to about £15bn. And that’s before considering the adverse effects on the public finances of weaker real gross domestic product growth and higher inflation caused by the energy shock, which could reduce the headroom to between £10-15bn.”
She went on: “Much will depend on market movements in the weeks leading up to the Budget on 28 October. But as things stand, this may mean Chancellor Healey is caught in the same headroom trap as Reeves and needs to cut government spending and/or raise taxes by something like £9-14bn to restore headroom and maintain fiscal credibility.”
‘Additional taxation of banks is a contender’
Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “We think the Chancellor’s headroom has fallen to £12bn and he will need to raise taxes or cut spending by at least £12bn to restore the headroom. Any further spending commitments would require more action.”
Jones said that because Burnham had pledged to stick to Labour’s 2024 manifesto commitments not to increase income tax, national insurance and VAT, Healey had a narrow set of options.
“Additional taxation of banks is an obvious contender given the current political discussion, alongside further measures affecting wealth and high-value property,” he said. “However, I would be cautious about assuming that any one of these can painlessly raise the sums required.”
Capital Economics has also suggested that tax increases could be “tilted” towards capital and wealth, pointing out that the Government had not ruled out raising capital gains tax (CGT), increasing the bank surcharge, changing the taxation of pensions or hiking inheritance tax.
Options on pensions including changing the tax-relief on pension contributions and changing the rules on how big a lump sum can be taken from a pension pot before it is taxed. Capital gains tax is paid on the profits of a sale of assets, such as a second home.
Burnham refuses to rule out tax increases
At his first Prime Minister’s Questions on Wednesday, Burnham was pressed by the Conservative leader Kemi Badenoch on what he would do about the increase in borrowing costs.
Burnham refused to rule out tax increases and insisted the Government is “taking the action needed to get debt down”. “This will be a Government grounded in fiscal responsibility,” he said. “We will stick to the fiscal rules, but at the same time we will help to reduce cost of living pressure on our constituents.”
He also said that the Government needed to “get the welfare bill down”.
The Prime Minister’s official spokesman said that Healey and Burnham were “in lockstep that the Government will meet the fiscal rules with a buffer against uncertainty”.
However, he refused to be drawn on whether Healey would aim to replicate the £24bn of headroom which Reeves gave herself at the last Budget.
“The Office for Budget Responsibility will publish its updated forecast alongside the Budget in October,” he said. “We won’t comment on every rumour, speculation, or proposals about its contents ahead of them.”
Nigel Green, the chief executive of the wealth management firm, deVere Group, warned that Burnham “needs to get a grip on gilts before Britain faces another Truss-style market meltdown”.
He claimed that the Prime Minister had unsettled the bond market with recent talk of taking “strong public control” of essential services.
“Every time Burnham opens his mouth on spending, fiscal rules or public ownership, gilts flinch,” he said.
He added that Healey is “staring down tax rises, spending cuts, or both, worth something in the region of £10bn a year, just to convince investors the sums still add up”.
The Treasury was contacted for comment.