OBR projections spell more trouble for Reeves

The Treasury has expressed concerns over stagnant productivity, following critical forecasts from the Office for Budget Responsibility (OBR). A Treasury source stated: “Stagnant productivity has been holding working people back.” The OBR’s projections suggest lower growth and higher inflation than previously expected. JP Morgan warned that the Chancellor, Rachel Reeves, may need to implement tax rises of £50bn to £80bn to manage debt this Parliament. Shadow Chancellor Sir Mel Stride attributed the economic underperformance to Reeves, stating: “Under Rachel Reeves, we have seen inflation double and debt balloon.” Meanwhile, Labour insiders are reportedly fearful that a slew of small tax increases in the Budget could be more damaging than ditching the party’s manifesto promises. Many large businesses have also suggested this strategy would be their preference. Finally, Helen Miller, the director of the Institute for Fiscal Studies, writes in the FT that the Chancellor needs to sell a clear vision for reform, instead of making piecemeal tweaks.

UK sees surge in new businesses

At the start of 2024, the UK had 5.7m businesses, an increase of 191,000 from the previous year, according to the Department for Business and Trade (DBT). This growth is primarily due to 201,000 new self-employed and one-person companies, despite a decline of 9,000 in firms employing staff. Jonny Haseldine from the British Chambers of Commerce noted: “It’s really welcome to see the UK’s entrepreneurial spirit created more private businesses in 2024.” However, he warned that many SMEs face “widespread cost pressures” and urged the Chancellor to avoid new taxes on businesses.

UK services sector hits five-month low

Business activity in the UK services sector fell to a five-month low in September, with the S&P UK Services Purchasing Managers Index Business Activity dropping to 50.8 from 54.2 in August. Tim Moore, economics director at S&P Global Market Intelligence, noted that “elevated political and economic uncertainty” is hindering performance. The report highlighted sluggish demand and rising staff costs as key issues. Many businesses are deferring spending decisions until after the autumn Budget, while households were also hesitant about major purchases. Matt Swannell, chief economic adviser to the EY Item Club, said the figures suggested “activity growth ground to a halt in September” while Thomas Pugh, an economist at RSM UK, said: “The economy is doing little more than muddling through in the second half of the year.”

Reeves should press for social justice in tax policy

Heather Stewart in the Guardian suggests the Chancellor focuses on framing any tax hikes in the autumn Budget in the “language of solidarity, social justice and fairness” – stressing the need for those who are able to contribute more. Stewart echoes a recent piece in the FT by Helen Miller, the director of the Institute for Fiscal Studies (IFS), who urged Rachel Reeves to “stop thinking in terms of isolated tax increases and start with a vision” of resolving distortions and unfairness. Elsewhere, Liam Halligan in the Telegraph asserts that, come November, Labour will no longer be able to use “global headwinds” or “fourteen years of the Conservatives” as excuses for the UK’s economic malaise, and warns that another mis-step by the Chancellor could cause gilt yields to spike, possibly necessitating emergency measures. In the same paper, Matthew Lynn says instead of spreading tax hikes across the economy, which would harm productivity, Labour should admit that it won’t curb spending and just raise income tax. “It does less damage to the wider economy, and it will force the voters to confront the electoral choices they face,” he adds.

Conservatives urged to overhaul tax system

The Conservatives are being encouraged to consider a radical tax reform during their time out of power. The proposal, set to be discussed at the Tory conference in Manchester, suggests a “single income tax” at 30%, merging National Insurance and income tax. Sir Jacob Rees-Mogg said: “Simplified and lower taxes are essential for economic growth. Moving to a flat tax has been very successful in other countries and could provide the fillip to prosperity the country needs.” The proposals have been drawn up by the TaxPayers’ Alliance, whose CEO John O’Connell said: “Taxpayers are crying out for some bold, radical policies on tax given the long-term economic stagnation we have been suffering.”

Small businesses fear tax rises ahead

Many small businesses are worried about their future, citing tax rises and financial uncertainty as key concerns. A survey by NFU Mutual revealed that 70% of sole traders and microbusinesses fear short-term challenges. The high cost of living and inflation are significant threats, affecting consumer confidence. Young business owners aged 25-34 are particularly anxious, with 85% expressing concern. Despite these worries, 75% of respondents remain optimistic about growth potential in 2026. Zoe Knight, head of commercial at NFU Mutual, stated: “It’s important to support them where possible.”

Bailey warns against deregulation

Andrew Bailey, the Governor of the Bank of England, has cautioned against slashing regulation in pursuit of growth. In a speech in Amsterdam, he said history would be at risk of repeating itself if memories of previous finances crises fade. “If the baby is thrown out with the bath water so to speak, and financial stability is relegated in terms of its importance, we won’t achieve our objectives,” he said.

US watchdog backs calls for crypto passporting with Britain

Adrienne Harris, head of the New York Department of Financial Services (DFS), says she supports a US-UK passporting scheme for crypto companies, arguing this could enhance regulatory cooperation and market access.

UK economy faces savings shock

The UK economy’s outlook has dimmed following a significant revision to the household savings ratio by the Office for National Statistics (ONS). The ONS cut its estimate for the savings ratio in late 2022 by 4.1 percentage points to just over 5%. Analysts, including Paul Dales from Capital Economics, noted that households may not have the expected savings to boost spending. Dales stated: “It’s not clear to me that households are sitting on a massive wodge of cash.” The revisions raise further questions about the accuracy of the ONS’s economic data.

Manufacturers double down on green investment

Manufacturers are increasingly committed to investing in green technologies, according to a report by Make UK. Over 80% of surveyed companies plan to incorporate green growth into their business strategies within five years. Despite this commitment, barriers such as higher business rates for energy-efficient technologies persist. Verity Davidge, policy director at Make UK, commented: “It is perverse that by making such investments their business rates increase.” The organisation urges the Government to remove these disincentives in the upcoming autumn Budget.

UK retail investors face delays before they can buy regulated crypto assets

Investors have been left frustrated by the Financial Conduct Authority after the regulator said there would be further delays for retail investors to buy exchange traded crypto products.

Tech talent in high demand for UK banks

UK banks and financial services companies are increasingly hiring nonexecutive directors with technology expertise, according to a report by EY. The study revealed that 52% of new board directors appointed in the past year had tech backgrounds, up from 36% the previous year. The shift follows recent cyber-attacks on major companies, prompting regulators to emphasise the need for tech knowledge in boardrooms.

EU reset will do practically nothing to boost trade

The Prosperity Institute claims that Labour’s reset with the EU will bring limited economic gains and risk leaving British businesses facing higher costs. The think tank argues that closer regulatory alignment with Brussels could raise imports by a maximum of 6% whilst imposing “significant new costs” on British business. The organisation said: “Policymakers would be better looking to domestic economic reform […] or trading opportunities beyond the EU.”

Banks face new fraud monitoring rules

Banks will be required to monitor pensioners’ bank accounts under the new Public Authorities (Fraud, Error and Recovery) Bill. The legislation aims to recover £9.6bn lost to fraud and error by 2030. Banks must report suspicious activity to the Department for Work and Pensions (DWP) without informing customers. An estimated £9.5bn was lost last year due to overpayments and fraud. Peter Tyler from UK Finance expressed concerns about the operational challenges and potential harm to vulnerable individuals.

French PM plans new tax bracket for the wealthy

Sébastien Lecornu, France’s Prime Minister, is proposing a new tax aimed at individuals earning over €250,000 (£218,000) annually. The initiative, detailed in a recent report, includes renewing the CDHR “minimum tax,” ensuring high-income households pay at least 20% in taxes. Additionally, Lecornu aims to address the use of holding companies to avoid dividend taxes, potentially generating over €1bn in revenue. The total expected contribution from wealthy individuals could reach between €4bn and €4.5bn.