Latest news with #OfficeForBudgetResponsibility
Telegraph
14 hours ago
- Business
- Telegraph
Reeves has already done irreversible damage to Britain
Less than a year after taking office, Rachel Reeves already looks to have inflicted irreparable damage on Britain's economy. Last autumn's budget saw the largest fiscal loosening of any event outside of July 2020 since the Office for Budget Responsibility's foundation, with a spending increase of almost £70bn enabled by £36bn in tax raids and a tweak to definitions of government debt. This had three easily foreseeable effects. The first was that the choice to raise taxes through employers' National Insurance, and therefore directly on payrolls, rather than slower-adjusting wages and prices, contributed to a sharp contraction in the labour market that a rise in public sector spending does not appear to have fully offset. The number of payrolled employees dropped by 274,000 between May 2024 and May 2025, with April's fall of 109,000 the steepest monthly decline since the pandemic. While some employers are laying staff off, others are cutting back on plans to hire, and the result is that there were 150,000 fewer vacancies in the latest quarter of data than a year before. The second predictable consequence was that a massive expansion in government borrowing would make future tax rises more likely. Gilt yields have risen, and with the 30-year now near its post-1998 peak, investors are displaying concern over the scale of the borrowing over the coming years of this Parliament. Growth forecasts, meanwhile, have fallen. The result is that the Chancellor has a razor-thin buffer against her fiscal rules and may well be required to cut spending or raise taxes in the autumn. And this brings us neatly to the third consequence of Reeves's Budget: people who can see where this is going, or are already in line to feel the pain, are getting out while they can. You or I might have viewed it as an obvious consequence; taxes specifically targeting some of the most internationally mobile groups in your country have at least one clear route through which they might spectacularly backfire. Regrettably, however, the exodus of millionaires from Britain reported by advisers over the last year still seems to have caught Rachel Reeves by surprise, and in the process created a new problem. Britain's welfare state rests to a great degree upon a narrow pillar of high-income taxpayers, with the top 1pc of earners accounting for 29pc of the income tax take. Now consider which groups Labour's taxes targeted: those with assets, by raising capital gains. Those who wished to provide for their children, by expanding the scope of inheritance tax and levying VAT on private school fees. And those who are in the country temporarily, by scrapping non-dom status in favour of a four-year residence-based status, with brutal inheritance tax provisions coming into force after that period. Small wonder that the wealthy seem to be fleeing Britain. Small wonder, too, that Reeves appears to be considering an about-turn on part of her non-doms tax raid. But having killed the goose that laid the golden egg, resuscitating it may prove rather more of a challenge. A partial reversion to the status quo ante might staunch the bleeding and prevent further departures, but it's far from clear that it will lure back those who've already left – particularly given that pressing need to raise taxes again over this Parliament, and Labour's clear preference for doing so by taxing the rich first. This would create a real headache for the Chancellor. The strategy of 'taxing the rich' already had limited room left to run. Robert Chote, the former OBR chairman, remarked a decade ago that the minimal impact of the decision to cut the rate from 50p to 45p had shown we were very likely 'strolling across the summit of the Laffer curve '. A smaller tax base of wealthy people would mean attempts to shift the cost of Labour's spending on to that group would mean much higher increases in individual tax burdens – likely triggering a renewed exodus. In other words, the money is going to have to come from somewhere else. In the last year or so, French users of the social media site X came up with the delightful meme of 'Nicolas, 30 ans' – the 30 year old graduate working in a good job, who finds their salary drained by taxes that pay for public spending on other people; benefits for the unemployed, pensions for the retired, aid for the third world, and so on. 'Nicolas' hasn't had a much better time of it in Britain. The vast majority of the rise in government spending since 2019 has gone on items that the young and employed have relatively little use for – interest on the debts accrued by previous generations, welfare, the NHS – while the tax burden has risen to a post-war high. Regrettably, Nicholas might also be Rachel Reeves's best target. Compare data on the tax 'wedge' for a single worker on average wage with government spending as a share of GDP, and you'll replicate Dan Neidle's finding that no OECD country spending as much as Britain does so with a tax burden for the average worker as low as ours. If we aren't willing to cut spending to emulate the likes of the USA, Australia and Switzerland, then we will likely raise taxes to match countries like France. And Labour has no visible intention of cutting spending. While Reeves might have failed to predict the obvious consequences of her policies, it's not hard to see where she might go from here. The Labour Party is winning its war on private wealth. Now, average earners will pay the price.
Sky News
10-06-2025
- Business
- Sky News
The spending review: Five things you need to know
Even for those of us who follow these kinds of things on a regular basis, the spending review is, frankly, a bit of a headache. This is one of the biggest moments in Britain's economic calendar - bigger, in some respects, than the annual budget. After all, these reviews, which set departmental spending totals for years to come, only happen every few years, while budgets come around every 12 months (or sometimes more often). Yet trying to get your head around the spending review - in particular this year's spending review - is a far more fraught exercise than with the budget. In large part that's because the Office for Budget Responsibility (OBR), the quasi-independent body that scrutinises the government's figures, is not playing a part this time around. There will be no OBR report to cast light, or doubt, on some of the claims from the government. Added to this, the data on government spending are famously abstruse. So perhaps the best place to start when approaching the review is to take a deep breath and a step back. With that in mind, here are five things you really need to know about the 2025 spending review. 1. It's not about all spending That might seem like a strange thing to say. Why would a spending review not concern itself with all government spending? But it turns out this review doesn't even cover the majority of government spending in the coming years. To see what I mean you need to remember that you can split total government spending (£1.4trn in this fiscal year) into two main categories. First there's what you might call non-discretionary spending. Spending on welfare, on pensions, on debt interest. This is spending the government can't really change very easily on a year-to-year basis. It's somewhat uncontrolled, but since civil servants wince at that idea, they have given it a name that suggests precisely the opposite: "annually managed expenditure" or AME. Then there's the spending the government has a little more control over: spending in its departments, from the Ministry of Defence to the NHS to the Home Office. This is known as "departmental spending". This is what the spending review is about - determining what departments spend. The key thing to note here is that these days departmental spending (actually, to confuse things yet further, the Treasury calls it Departmental Expenditure Limits or DEL) is quite a bit smaller than AME (the less controlled bit with benefits, pensions and debt interest costs). In short, this spending review is actually only about a fraction - about 41p in every pound - of government spending. You can break it down further, by the way. Because departmental spending can be split into day-to-day spending (Resource DEL) and investment (capital DEL). But let's stop with the acronyms and move on to the second thing you really need to know. 2. It's a "zero-based" review. Apparently The broad amount the government is planning to spend on its departments was set in stone some time ago. The real task at hand in this review is not to decide the overall departmental spend but something else: how that money is divided up between departments. Consider: in this fiscal year (2025/26) the government is due to spend just over £500bn of your money on day-to-day expenditure. Of that, by far the biggest chunk is going to the NHS (£202bn), followed by education (£94bn), defence (£39bn) and a host of other departments. That much we know. In the next fiscal year, we have a headline figure for how much day-to-day spending to expect across government. What we don't have is that breakdown. How much of the total will be health, education, defence and so on? That, in a sense, is the single biggest question the review will set out to answer. Now, in previous spending reviews the real debate wasn't over those grand departmental totals, but over something else: how much would they increase by in the following years? This time around we are told by Rachel Reeves et al that it's a slightly different philosophy. This time it's a "zero-based review". For anyone from the world of accountancy, this will immediately sound tremendously exciting. A zero-based review starts from the position that the department will have to justify not just an annual increase (or decrease), but every single pound it spends. It is not that far off what Elon Musk was attempting to implement with the DOGE movement in US government - a line-by-line check of spending. That's tremendously ambitious. And typically zero-based reviews tend to throw out some dramatic changes. All of which is to say, in theory, unless you believed government was run with incredibly ruthless efficiency, if this really were a zero-based review, you'd expect those departmental spending numbers to yo-yo dramatically in this review. They certainly shouldn't just be moving by small margins. Is that really what Whitehall will provide us with in this review? Almost certainly not. 3. It's the first multi-year review in ages What we will get, however, is a longer-range set of spending plans than government has been able to provide in a long time. I said at the start that these reviews are typically multi-year affairs, setting budgets many years in advance. However, the last multi-year review happened in the midst of COVID and you have to look back to 2015 for the previous multi year review. That certainty about future budgets matters for any government department attempting to map out its plans and, hopefully, improve public sector productivity in the coming years. So the fact that this review will set spending totals not just for next fiscal year but for the next three years is no small deal. Indeed, for investment spending (which is actually the thing the government will probably spend more time talking about), we get numbers for four successive years. And the chances are that is what the government will most want to talk about. 4. It's not "austerity" One of the big questions that periodically returns to haunt the government is that we are heading for a return to the austerity policies prosecuted by George Osborne after 2010. So it's worth addressing this one quickly. The spending totals implied by this spending review are nothing like those implemented by the coalition government between 2010 and 2015. You get a sense of this when you look at total public spending, not in cash or even inflation-adjusted terms (which is what the Treasury typically likes to show us), but at those figures as a percentage of GDP. Day-to-day spending dropped from 21.5% of GDP in 2009/10 to 15% of GDP in 2016/17. This was one of the sharpest falls in government spending on record. By contrast, the spending envelope for this review will see day-to-day spending increasing rather than decreasing in the coming years. The real question comes back to how that extra spending is divided between departments. Much money has already been promised for the NHS and for defence. That would seem, all else equal, to imply less money for everyone else. But overshadowing everything else is the fact that there's simply not an awful lot of money floating around. 5. It's not a big splurge either While the totals are indeed due to increase in the coming years, they are not due to increase by all that much. Indeed, compared with most multi-year spending reviews in the past, this one is surprisingly small. In each year covered by the 2000 and 2002 comprehensive spending reviews under Gordon Brown, for instance, capital investment grew by 16.3% and 10.6% respectively. This time around, it's due to increase by just 1.3%. Now, granted, that slightly understates it. Include 2025/26 (not part of this review but still a year of spending determined by this Labour government) and the annual average increase is 3.4%. Even so, the overall picture is not one of plenty, but one of moderation. While Rachel Reeves will wax lyrical about the government's growth plans, the numbers in the spending review will tell a somewhat different story. If you can get your head around them, that is.
Telegraph
10-06-2025
- Business
- Telegraph
Revealed: The spiralling cost of housing foreigners
Foreign-born heads of households in London cost Britain around £3.6 billion a year in discounted rent, Telegraph analysis suggests. Nearly half of all social housing in the capital, 48 per cent, is occupied by foreign-born heads of household, data from the 2021 census shows. This is well over the national average of 19 per cent. These households benefit from cheap rents which, when compared to private rent in London, average out at a discount of around £11,600 per year per household. Responding to the figures, Robert Jenrick, the shadow justice secretary, said: 'This research shows how the huge costs of mass, low-skilled migration are often hidden from the public. When you lift up the bonnet, it's clear that the level and composition of immigration have been hugely economically harmful for decades'. The figures also show some 35 per cent of working age foreign-born heads of households in London's social housing are either unemployed or economically inactive, despite living in one of the UK's most prosperous regions. The most recent ONS figures show that output per hour worked in the capital is approximately 26 per cent higher than the UK average. The figures cast further doubt on the UK's migration policies. Last year, the Office for Budget Responsibility found that low-paid migrant workers were costing taxpayers more than £150,000 each by the time they hit state pension age The proportion of social housing allocated to foreign-born lead residents varies drastically across the capital. A majority of social housing is occupied by a foreign-born lead tenant in 14 of the city's 32 boroughs, with only 10 areas in the capital falling below the level of 40 per cent. Over 60 per cent of social housing in Brent and Westminster is allocated to foreign-born lead residents but this drops to 16 per cent in Havering. To come to the figure of £3.6 billion, The Telegraph matched rents for London's 'general needs' social housing stock across local authority and private registered providers with median private sector rents for properties with equivalent numbers of bedrooms. This suggested that socially rented properties were approximately £11,992 cheaper per year in 2021. Adjusted for estimated service charges, the net discount works out at £11,610. Added up across the city across the whole of the population, this suggests a total subsidy of approximately £7.7 billion. If households headed by foreign-born residents take up a proportional share of this sum, it would amount to roughly £3.6 billion per year in total discounts. Separate data from the English Housing Survey suggests that there is significant variation between ethnic groups with regards to social housing use. Roughly 48 per cent of Black Caribbean households, 40 per cent of Black African households, and 40 per cent of Bangladeshi households in England live in social housing, compared with 16 per cent of White British households, and 5 per cent of Chinese and Indian households.
Bloomberg
03-06-2025
- Business
- Bloomberg
OECD Says Reeves ‘Thin Fiscal Buffer' Poses Risks to UK Economy
UK Chancellor of the Exchequer Rachel Reeves will expose the economy to 'significant downside risk' if she does not give the government more room to maneuver within her fiscal rules, the Organisation for Economic Cooperation and Development said. Reeves' 'very thin fiscal buffer' against her main rule that taxes must cover day-to-day spending in 2029-30 is not enough to safeguard against 'adverse shocks,' the group said as it cut its estimate for UK growth in both this year and next due to the US-led trade war. The Office for Budget Responsibility, the fiscal watchdog, judges she will meet her rule with just £9.9 billion ($13.4 billion) to spare.
Telegraph
02-06-2025
- Business
- Telegraph
‘I'm desperate to invest but afraid of piling more inheritance tax on my daughters'
Receive personalised tips on how to improve your financial situation, for free. Here's how to apply or fill in the form below. Rachel Reeves's inheritance tax raid means it's growing ever harder to escape paying death duties. The Chancellor's decision to strip pensions of inheritance tax relief as well as freezing the nil-rate band until 2030 means the number of estates liable to pay the death levy is forecast to more than double by the end of the decade, according to the Office for Budget Responsibility. John Dixon is hoping to buck the trend. He has so far made few plans for how best to pass on his inheritance to his two daughters, but the death of his late wife Valerie in October has spurred him into action. He says: 'Some of the inheritance tax rules are baffling. I'm concerned if I leave things as they are, I'll find myself in the 40pc bracket [the rate of tax charged on an estate above the threshold] and it's something I desperately want to avoid.' The nil-rate band allows Mr Dixon to pass on £325,000 without incurring death duties, and he can pass on a further £175,000 if he leaves his home to a direct descendant. As his wife's allowance was unused, it means he can effectively pass on up to £1m to his daughters tax-free. But, if Mr Dixon is going to avoid paying inheritance tax, he needs to act quickly. A highly successful career in the telecommunications industry has left the 74-year-old with an extensive portfolio of savings and investments. He has amassed £320,000 in cash savings, including £50,000 sitting in his current account, on which he only earns 2.5pc interest on the first £25,000. He also holds the maximum £50,000 in premium bonds, while the rest of his cash sits in a number of different savings accounts. Mr Dixon also has a stocks and shares Isa worth £53,000 after his wife's funds were transferred to his account. He says he does not regularly make use of the £20,000 tax-free allowance. He says: 'I've got way too much in cash savings and I know it's ridiculous how much is in my current account. I'm desperate to get it out of there and put it somewhere where it can't do any harm in terms of additional taxes.' Additionally, he owns his home outright and had it recently valued at £950,000, and a combination of the basic state pension and two workplace pensions provides an annual net income of around £43,000 a year. As well as a positive attitude to addressing his finances, Mr Dixon is aided by a clean bill of health. 'I am from the North East and we would say 'I'm as fit as lop'. Everything works. I've got my own hair, my own teeth and, bar a few aches and pains of course, nothing desperately wrong.' He also stays fit by playing 18 holes of golf four times a week, something that has provided great comfort. 'Since Valerie died, I found myself playing a lot more because it helps enormously to think about something else and not being dragged back to her death and all of the sadness associated with that. 'Golf has been enormously helpful in that respect and the guys that I play with regularly have also been very helpful and supportive.' Dan Caps, investment manager, Evelyn Partners Based on the figures Mr Dixon has provided, his estate is made up of his home – valued at £950,000 – his cash savings of £320,000 and his Isa of £53,000. All of this brings his estate to £1.3m. Mr Dixon will also need to think about any personal effects and chattels that may need to be considered. Mr Dixon has confirmed that his wife's nil-rate band is unused, and the good news is this will pass to him automatically. Mr Dixon should also be able to benefit from both his and his wife's additional residence nil rate band, which was introduced in 2017. As such, he can pass on the first £1m of his estate free from inheritance tax, while any excess over this level will be subject to inheritance tax at 40pc. It is worth bearing in mind that Mr Dixon would begin to lose the benefit of the resident nil-rate band should his estate exceed £2m on his death, but given the valuation this currently seems unlikely. So, based on the above estate value of £1,323,000, Mr Dixon's current inheritance tax liability is in the region of £129,200. There are several steps Mr Dixon can take to mitigate inheritance tax, and he has already mentioned he is exploring gifts out of surplus income. As Mr Dixon's income exceeds his expenditure, he is able to give away the surplus and this will immediately fall outside his estate for inheritance tax. Mr Dixon should be able to demonstrate that these funds are not necessary to meet his standard of living, and a regular pattern to these gifts helps evidence this. As with all gifts, these should be documented, which will help when it eventually comes to dealing with his estate. In addition to this, Mr Dixon could gift some of the funds he holds in cash or in his Isa, and he tells us he has 'way too much' in cash savings. Larger gifts are subject to the potentially exempt transfer rules, which means they will fall outside Mr Dixon's estate seven years after the gift is made. Before Mr Dixon gives away large sums, he should think whether he may need these funds for himself in the future – to meet any care fees, for example. He should plan carefully and think about talking to a financial planner, who will be able to construct a cash flow forecast for him, which will give him greater confidence when making gifts. There are also lots of other ways to mitigate inheritance tax, including life assurance policies, investments which attract business relief and are free from inheritance tax after two years of ownership, and other smaller annual gift exemptions. All inheritance planning strategies require some form of trade-off and often a combination of a number of different strategies is most suitable. Again, a financial planner will be able to help Mr Dixon review all the options available to him. Gary Steel, senior wealth planner, Canaccord Wealth The first step would be to consider Mr Dixon's current plans given his recent change in circumstances. Does he want to stay in his current home? What changes does he see for himself in the future? We need to make sure he has sufficient funds and flexibility to enable him to live the lifestyle he wishes while also planning for the future. I would also recommend that Mr Dixon reviews his will at this stage to make sure his wealth is passed to his daughters on his death. He should also ensure he has drafted suitable Lasting Power of Attorney documents – a qualified lawyer would be invaluable here. Mr Dixon's wife died less than two years ago, so it should be possible to vary her will – assuming she passed her estate to her husband – to pass some of her wealth to their daughters. This would reduce the value of Mr Dixon's estate for inheritance tax purposes. As well as making gifts from surplus income, up to £3,000 per tax year can also be gifted by Mr Dixon, which is immediately free of inheritance tax. HMRC Form 403 shows how to calculate surplus income. But before making gifts, Mr Dixon needs to carefully consider his own requirements. A key factor is to ensure he has enough money for the rest of his life. A detailed cash flow analysis with a financial adviser will help him explore various 'what if' scenarios, help him make informed decisions and give peace of mind as he moves into the next stage of his life. The remainder of Mr Dixon's cash could be invested to achieve potentially greater returns than bank deposits, as well as keep pace with inflation.
