Rachel Reeves left the country – and the markets – guessing over the summer. Rather than announcing the date of the autumn Budget before Parliament broke up for its holidays, as is normal, she kept silent about her plans for six long weeks.
The Chancellor has now broken cover, announcing that the Budget will take place on 26 November – about the latest possible date that it could be, without slipping into winter and risking “nightmare before Christmas” headlines.
But the damage has already been done. Reeves and her aides have allowed speculation to fly, and there is already a real-world effect on businesses, workers and investors.
Last week, shares in Britain’s biggest banks – shares included in the pension funds of most UK workers – fell by as much as 5 per cent following rumours that the Treasury will slap an additional levy on city profits.
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Chatter around extra property taxes, such as applying capital gains tax to the sale of high-value houses even if they are a family home rather than a second home or investment, appears to have gummed up the market.
Will more small businesses be subject to VAT? Not sure – well-connected journalists have reported this is on the table, and Reeves’s spinners refuse to respond either way. What about higher taxes on pension pots? Again, media stories say this is being considered and the Treasury will neither confirm nor deny it.
We have been here before. Last year, rumours of higher taxes on pensions prompted thousands of people to withdraw cash from their own savings – meaning that when the chatter proved untrue, those who had acted found themselves losing out on tax-efficient investments.
“People should take care not to make major, irreversible decisions based on speculation about measures that may never happen and which they may later regret,” Jason Hollands of wealth management firm Evelyn Partners warned after the Budget date was announced.
Friends of Reeves are adamant that none of the speculation seen over the summer originated with her. But by refusing to kill any of it off – to play what Treasury insiders dismissively refer to as “the rule-in, rule-out game” – the Chancellor is leaving the public, and businesses, in the dark about what is to come in November.
Global investors are getting jittery. The cost of issuing long-term debt rose to its highest level of the century so far this week, and the value of the pound fell by more than 1 per cent, seemingly signalling concern from financiers about the ability of the Government to bring the public finances under control.
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That is not simply abstract, a matter of figures on a chart. The more expensive it is for the state to borrow, the less money is available for the services on which ordinary people rely, while a less valuable currency pushes up the prices of imported goods as well as reducing our purchasing power when we go abroad.
The response from those in Reeves’s camp, speaking privately, is that turmoil in the markets makes it all the more important for her to stick to her fiscal rules rather than ramping up borrowing further – as some on the left demand – but that it would be irresponsible to break the secrecy of the Budget process by providing a commentary on which tax rumours are true and which are not.
But this is no iron rule: in the past, I am told, senior civil servants in the Treasury have actively encouraged political operatives to put out details of what is and is not likely to be in the Budget in order to ensure that the markets do not have to swallow any nasty surprises when the package is unveiled.
For now, all we know is that the news is likely to be bad. Reeves hopes that holding the Budget late will give the Office for Budget Responsibility more time to “score” the impact of the Government’s pro-growth policies – that is, to put a number on how much they will boost the public finances and therefore reduce the need for further savings.
But given the movements in financial markets, and soft economic growth, it currently looks like Reeves will need to find as much as £30bn to avoid breaking her rules and keep the confidence of investors, according to estimates circulating recently in the city. That would mean hefty tax increases – or spending cuts, although after the forced retreat on welfare reform earlier this year it is hard to see how those could get past unhappy Labour MPs.
There are still 12 weeks until the Chancellor tells us her plans. If she does not start giving clearer indications of how she will balance the books, we will all be the poorer.
Hugo Gye is The i Paper’s political editor
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