Chancellor Rachel Reeves will have the opportunity to salvage something by making green investments the priority when she delivers the New Economic Deal on 26 November. This announcement comes at a particularly opportune time. As the UK continues to wrestle with stagnating economic growth, a cost-of-living crisis and the looming threat of privatisation via tax reform, the Budget speech will be a defining test for the new government. It will showcase Reeves’ ambitious vision for a new economy, all while being anchored by the two ironclad rules that she has imposed upon herself.
Reeves has ruled out any upfront reform to cash ISAs (Individual Savings Accounts) since July. Now, he’s under increasing pressure to respond to the public’s concerns about being taxed. That’s fueled speculation that she will call for raising taxes in her forthcoming budget plan, or in other plans expected later this spring. Rest assured that any such moves will be met with intense scrutiny. That’s particularly the case when Labour has already committed not to increase income tax, National Insurance or VAT on working people ahead of the next general election in 2024.
Despite these challenges, the UK economy still grew by just 0.3% in Q2 of 2023. Inflation continues to be a daily concern, with inflation measured at 3.8% over the year ending in July. Confronted with the threat of an economic implosion, the Bank of England fought back. In August, they reduced the main interest rate to 4%. The alignment of these factors creates the perfect backdrop for a smart and enormously influential Budget roll-out from Reeves.
As excitement grows for the upcoming Budget, so too do the rumors of what the opposition will implement in its defense. Kemi Badenoch, the new Conservative MP and Leader of the Opposition, appears set to pounce. She will respond to Mr. Speaker Reeves’ speech in the House of Commons. A few wishful thinkers are arguing that Badenoch should use this opportunity to lead a charge on lowering the annual allowance. This new provision would incentivize larger scale public investments to buy shares.
According to the Financial Times, the government is even considering the option of taxing profits on the sale of a main home. This new development injects even more uncertainty into the equation. Given soaring inflation, such proposals would be particularly harmful to current homeowners as well as the broader housing market. First, routinely freezing tax thresholds increases the number of people who become subject to higher taxes. As we see salary compression over time, this will only worsen.
The Budget debate will play out across four days on the floor of Parliament, giving MPs ample opportunity to test and discuss – or rip apart – Reeves’ proposals. After this time for discussion and deliberation, a vote will decide which suggestions will be adopted to guide the city in its future.