Before Rachel Reeves even delivered her Budget, I wrote this:
I was right. That is where the backlash is.
I added in that post:
Where will the crunch points be?
Nursery care will be one. An increase in employer's NIC plus an increase in the minimum wage, which most young carers are paid, will lead straight into price increases that few young families already hit by staggering rent or mortgage rises will not be able to afford.
There is going to be a lot of anger about that.
And expect the same in social care - where the same situation arises and the costs will have to be passed on to those already struggling.
Again, I was right: these, and in hospitality, are where the crunch points are coming.
In both nursery care and social care, the issue is going to be enormous. In the first case for the parents of children, who are already most likely pushed to their limits and who will now have an additional cost to pay, as few nurseries make enough to absorb this cost. This will be inflationary.
In social care, the additional cost is enough to wipe out all of the £600 million of extra funding allocated to this sector in the Budget.
And this is not the only part of the government with a problem. In Scotland, the already underwhelming Budget allocation of £3.4 billion is likely to be undermined by a £500 million NIC clawback. And the Treasury has, so far, been unable to say whether Scotland will be compensated for that or not, which is absurd.
If I could see, with ease, that this crisis would unfold - which I did before Reeves even spoke - how come the Treasury could not, or did not, or at least failed to prepare for how they will deal with it?
And if they do now compensate social care, education, Scotland and Wales, plus the NHS (as they should, in each case), what are they going to say to businesses that are obviously going to suffer from this?
Big businesses can afford to pay, but small businesses rarely pay their owners a great deal (contrary to common perceptions), and they will suffer, as will employment prospects for many people who are on lower pay.
This is a fiasco all of Rachel Reeves's own making and all because of stupid promises made before the election. We are going to pay a high price for her incompetence.
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Richard you asked
“If I could see, with ease, that this crisis would unfold – which I did before Reeves even spoke – how come the Treasury could not, or did not”
The only conclusion must be that they are all incompetent and ignorant of and about how macroeconomics work and they clearly have no concept of cause and effect having failed to understand the consequences of their own actions.
I would hazard a guess that very few of them have any contact with the world that most of us live in.
I think your idea that all MPs should attend a period education when elected is self evident.
As for myself I have not spoken to my accountant as yet but I fear the worst.
I respectfully disagree that incompetence is the only conclusion.
I am thoroughly convinced that Starmer and his lackeys were parachuted into Labour by the Neoliberals in order to carry on their plan to transfer all wealth to the haves, shafting the don’t haves in the process.
As night follows day.
Labour’s deputy PM Angela Rayner with Blackrock CEO Larry Fink at the international investment conference on 14 October –
https://x.com/UnityNewsNet/status/1846132832982245739
‘I’m glad I don’t have to look into moving to Paris, put it that way,” said one senior private equity manager. He was among a raft of private equity bosses nursing hangovers in some of the capital’s smartest postcodes on Thursday, a day after the Labour party unveiled its first budget in 14 years. “I don’t often drink these days but a few of us did go out for drinks to celebrate,” he chuckled’.
‘The reason for the industry’s jubilation? Labour’s major climbdown on its planned tax raid on carried interest – the share of profits that senior private equity bosses make after buying, turning around and selling a business’.
https://www.theguardian.com/business/2024/oct/31/how-private-equity-convinced-labour-to-go-easy-on-its-multimillion-pound-tax-perk
Nonetheless it’s good to read that not all countries have capitulated to extreme wealth.
https://www.theguardian.com/commentisfree/2024/nov/01/one-year-on-we-know-this-swedens-trade-unions-are-more-than-a-match-for-elon-musk
…increases that few young families already hit by staggering rent or mortgage rises will not be able to afford.
I think “few” should be “most”, or the “not be able” should read “be able”.
But I do agree you called it correctly.
You are correct. Mind you I am feeling sympathy for Rachel Reeves – in a job for which she is unsuited, lacking knowledge to make sensible decisions despite thinking she is doing the right thing, and fearing that people will find out how useless she is and she will lose her job!
I do not feel sorry for Reeves at all to be honest.
Nor have I felt sorry for any Chancellor in my life time who has submitted to the Neo-liberal view that governments are incapable of running the economy and need input from private banking or high finance in order to do so.
Let us be clear here: private banking owes itself to government, it is created by government created and sponsored currency and also is granted a license to print credit in that currency. So, who is REALLY in charge here? Yet, it is the user of the currency whose ‘wisdom’ apparently is rated more highly than the issuer. What a load of bollocks. A recipe for disaster. Too convenient if you ask me.
There is simply no domain knowledge among what are after all mere politicians now, claiming to be managers and knowing what they are doing.
Quite simply these politicians do not now what they are doing – if so, why do they have so many advisors, and where the hell do the advisors come from?
It’s all a complete confection, a self promotion of politics over management but even worse, it is ideology over principle, over democracy that I hate more than anything.
I agree, and always glad to read your posts. I’d add, to paraphrase Slavoj Zizek, if you think you’ve escaped ideology, you’re in ideology. I’d say the same of politics, again to quote Skin, everything is political. Nothing is more absurd and speaks to the point you’re making than one politician saying of another that they’re playing “politics” with whatever. Westminster is a game played by two dominant parties, constantly recycling cliche after cliche, the only substance is law and policy that acts on behalf of wealthy. Again, to quote the title of a book by Audrey Lorde, “The Master’s Tools Will Never Dismantle the Master’s House”. As long as we accept government by a centralised, elite minority, this is what we’ll get. A recent article by George Monbiot noted that the 30 years following WWII were an aberration, benefitted primarily the global north (at the south’s expense), did not benefit everyone and, whilst better, it was a matter of degrees. It wasn’t a permanent trajectory of “progress”, and gains had to be fought for and were under sustained attack right from the outset. I’d say that governance is far too important to leave it up to 650 people to do. On a final note, aren’t we told that the power belongs to the voter?
What I find particularly staggering is it took 4 months to release this budget, so supposedly a lot of work went into it. I’m no economist, but it’s obvious that a massive but needed increase in the minimum wage, combined with a massive hike in employers NI was going to be extremely difficult for the care and hospitality sectors. She should have at least had some answers for this. And it feels like this hits employers at the bottom of the income ranges harder then those higher up. Very odd for a so called Labour government.
It seems like the government hasn’t thought through the consequences of the big rise in secondary NICs, simply believing that business can absorb the cost. I would suggest most businesses will need (and not simply want) to pass the costs on to their customers. I heard Sir Tom Hunter say on Question Time last night that a friend of his with a business turning over £40m would be paying an additional £500k in ERNICs per annum as a result of this rise. I first thought that couldn’t be true, but some number crunching convinced me it was indeed possible. Sir Tom didn’t say what his friend’s business did, mind.
Take two businesses with an existing wage bill of say £20m. The first one employs 500 staff at a salary of £40,000 each. The cost of these measures to it will be £492,900 (500 x £615 from the reduction in the lower limit, plus 500 x 1.2% x 30900 from the uplift in the rate). However, a second business with 1000 staff each paid £20,000 will pay an additional £745,800 in ERNICs (1000 x £615, plus 1000 x 1.2% x 10900).
How ironic is it that a (nominally) Labour government can implement a measure that has a much larger marginal effect on businesses which employ less well-paid employees. That cannot be good for the employment prospects of the lower paid, as well as the future profitability of small businesses.
It’s almost as if it’s part of the plan to reduce the number of small businesses. Those figures paint a stark and, in my view, deliberately intended, outcome. There are so many regressive taxes, NI, VAT, council tax, pension lump sum withdrawals (25% or £267,000, whichever is lower!), CGT, endless reliefs, the list goes on.
I work for a large employer, but I also do freelance work via my own LLC to top up my relatively low salary (for what I do) in the Higher Education Industry. I have only just started to pay myself a meager salary after years of hard work to get my company to survive Brexit and Covid. I am not wealthy, I do not have savings, the majority of my money goes on childcare and rent. I am a single director, single employee of my own company (disqualified from the Employment Allowance). The drop in the secondary threashold means I will have to make 1 of two choices, increase my prices to cover the 15% loss after earning £5k, or reduce my salary to £5k. I am not included in Labour’s definition of working people it seems. I could employ another person and benefit from the Employment Allowance, but I am not able to currently due to low turnover and no consistent source of income for the company. I am questioning if it is worth keeping going at this point, because it’s a lot of work for little benefit.
As a payroll provider I am seeing clients facing a 30% increase in the total wage bill, which is just unsupportable. The % increase, fair enough, but the huge drop in the threshold makes continuing to employ staff just impossible. At least one is looking at halving their 3 staff members hours and finding 3 additional staff members. It is just impossible to believe that thia government really thought ths change was reasonable while not doing anything about all the areas where the wealthy gain.
Richard Benjamin. If you employ someone for 1 week and pay them at least £100, provided, obviously, that they are doing work worth that, you should qualify for Employer’s Allowance.
The problem is beyond Rachel Reeves. Labour has thrown the kitchen sink at ‘the problem’ using the standard neoliberal apparatus. It is unravelling already because ‘the problem’ is and always was, elsewhere. The politicians, their Parties, the functionaries, the Media and the electorate cannot even face the real problem: Britain itself.
The damage inflicted by the 2007-8 Financial Crash (beyond saving the financial system from outright collapse and band-aids against future turmoil) was compounded by a policy of Austerity that undermined the resilience and capacity of the economy. This calculated damage was accelerated by Brexit in 2016. Brexit cut 4% from GDP, not as a single penalty; but as an irreparable self-inflicted wound. Brexit permanently shrank the economy. Britain therefore lives in a self-imposed worse economic condition, with no demonstrable ability in this international economic environment, to recover the lost ground. Britain then suffered Covid, which required the public purse to support the populace in conditions to which the private sector was not capable of delivering (largely outside Big Pharma, backed by the Public Purse). The massive costs of Covid, and the inevitable errors and mistakes in a crisis, were then made far worse by the appalling incompetence (and allegedly worse) of the Conservative Government’s serious mis-management of the crisis. Putin’s attack on Ukraine (a calculatedly timed act) was assisted by the inspiring encouragement given to Putin exploiting European weakness, by the key Brexit disruption, and the indulgence of London in encouraging Russian oligarchs to flood the City with their money and influence, from around 2002 and unaffected by the Russian assassination of Alexander Litvinenko in a Mayfair hotel in 2006). Britain’s underlying fragility (and Europe’s) weakness was revealed in the impact of the Ukraine war on oils and gas prices, and on inflation; further damaging the British economy. In spite of weak claims about the imposition of ‘Sanctions’ on Russia; Britain’s cost of living crisis has been more seriously, adversely affected than the effects of sanction on Putin’s capacity to fight his war; which continues to be funded by Russia’s capacity to sell oil and gas, in spite of sanctions.
The list of downsides provides an indication only of the scale and permanence of Britain’s now shrunken economic capacity; in a world now dominated by the ‘big battalions’; the US, EU, China, India – of which Britain is no longer a composite part, or able to compete (whether or not the field is level); in a world where tariffs, customs agreements and protection has always, and will always play a part; whatever is said about ‘free trade’.
The upsides for the British economy; on which to base the Labour (or Conservative) prospect of growth (and its financing) is not capable of delivering it. The British economy has a small base, it is import dependent, and it has little industrial capacity. All these are policies followed for forty years – delivering the disaster we are now enjoying. Only the US can indulge the idea of being import dependent, because it is the World Reserve Currency. Britain’s far greater reliance on imports is far more serious. Our economy is dependent on services and, most of all, the Finance Sector, and the City. That worked in past centuries, but it has run out of road. Nobody in the Big Battalions of the 21st century is going to need British approved functionaries who are little better than medieval notaries with a big stamp, shuffling paper. At the same time the City and Finance Sector are in decline. By 2023 the bank Peel Hunt was talking about a City ‘doom loop’; with more companies leaving the Stock Exchange than joining (‘Fortune/Bloomberg’, 31st October, 2023). The UK Stock Exchange was the world’s largest until the end of WWI, and is now falling, ever faster and further from significance in world stock markets with every passing year. What the City and Banking sector’s predominance in Britain does best is not delivering growth, higher living standards, or frankly much of real, substantive benefit; what they deliver is rather – literally Britain itself, into the hands of financial markets, who then exploit the captured dependence for their own benefit*. They determine the rules of economic engagement which Government follows. Rachel Reeves is just finding out what that means. Britain is unique, because of its dominant position in the history of financial markets, in creating for itself a situation that ensures it is the enslaved creature of the markets that it pretends are serving it.
Britain is exploiting, and eating itself; and the mechanism is ‘leverage’ applied both to the private and public sector under rules determined by the finance sector alone (with sovereign government as supplicant); and exclusively in their own interests. In a real crisis however, markets do not lend.
* I have referenced Schularick And Taylor, ‘Credit Booms Gone Bust’, IMF Working Paper, 2012 before. It is relevant because credit has been exploited to play an over-dominant, and uncontrolled part in the economy, with disastrous results. This excerpt provides a useful window into the specific way Britain’s self-destructive indulgence of banking and finance, not as an enabler of economic activity, but its end-goal, actually to undermine itself.
“We have shown how the stable relationship between money and credit broke down after the Great Depression and World War 2, as a new secular trend took hold that carried on until today’s crisis. We conjecture that these changes conditioned, and were conditioned by, the broader environment of macroeconomic and financial policies: after the 1930s the ascent of fiat money plus Lenders of Last Resort—and a slow shift back toward financial laissez faire — encouraged the expansion of credit to occur. The policy backstop also, to some degree, insulated the real economy from a scaling up of the damaging effects that prior crises had wrought in days when the financial system played a less pivotal role. However, implicit government insurance and the prospect of rescue operations might also have contributed to the spectacular growth of finance and leverage within the system, creating more of the very hazards they were intending to solve. Aiming to cushion the real economic effects of financial crises, policy-makers have prevented a periodic deleveraging of the financial sector resulting in the virtually uninterrupted growth of leverage we have seen up until 2008. The important structural changes that have taken place in the financial system over the past decades have led to a greater, not smaller role of credit in the macroeconomy. It is mishap of history that just at the time when credit mattered more than ever before, the reigning doctrine had sentenced it to playing no constructive role in monetary policy” (Schularick aand Taylor, 2012; p.28-9).
This is a nation incapable of thinking in any depth. It ought to have fully analysed both good and bad what really happened in 1694 with the establishment of the Bank of England but has failed to do so.
Reeves budget is having repercussions here in Sweden. The right wing are positively gloating over the chance to push home that left wing thinking makes things worse for most people.
She is giving socialism a bad name!
It’s hard for us on the left to meet these criticisms.
Reeves / Treasury – whoever, certainly appear incapable of thinking through the impact of their proposals. Looks like palliative care will be severely hit as it is largely not provided by the NHS but by charities ie Hospices, MacMillan and Marie Curie Nurses.
Add in GP practices who are mainly still small businesses.
Truly, you have to wonder how all these so called intelligent people are so utterly inept.
As for all the advisors, I once spoke to the father of one and discovered that the advisor was “attached” to the minister, so when they changed jobs the advisor stayed with the minister so frequently neithe4r of them had any knowledge of the subject area. Time there was some transparency and minimum requirements before anyone can become an advisor and they should be severely limited in number, and pay.
Hi Richard,
I agree with pretty much everything you have said about the budget.
I do, however, have a question.
The bulk of the tax raised (25BN) is from the national insurance rise. You have written in recent months that introducing tiered interest rates on central bank reserve accounts could free up similar’ish amounts. You haven’t mentioned this in your budget analysis I was wondering why. Have I misunderstood?
Surely bashing the bankers would have been more politically acceptable ( to the electorate at least! ) rather than effectively increasing a “tax on jobs” and putting downward pressure on wage rises?
Keep up the good work please. You are my first read in the mornings!
Good question
Haste is my best explanation.
Maybe I should make amends by writing a post about it.
You are absolutely right of course, but what we have to think through, is what (currently) motivates Reeves/Starmer and who she feels beholden to. It is clearly the opinion of the City, the BoE, the Treasury mandarins, the “markets” (who have been sending coded signals this week), the press oligarchs, and her party’s donors, that are deciding her direction of travel, and she has taken little persuading.
She won’t be thinking about voters for 4 years (unless the 2025 local elections go v badly, which they might).
What she WILL be looking out for are the usual scapegoats to blame for when it goes pearshaped…
-Global events (foreigners over there)
-Immigration (foreigners over here)
-“Fourteen years of Tory misrule” (the Harold Wilson line).
-“Irresponsible” wage demands
-Local government & public service “inefficiencies”/”profligacy”
-Money “wasted on benefits” (skivers, shirkers, long term sick)
She might even believe it.
It’s up to us to persuade our friends, colleagues, neighbours and political “representatives” that she is very very disastrously, dangerously wrong.
Reeves is palpably out of her depth she will ruin our country.
At a men’s (outdoor) breakfast yesterday morning (funded by City Council & NHS to promote men’s mental & physical wellbeing, in our v deprived S Bristol ward – this is not the Rotary club), I had another omnibus conversation, “What did you think of the budget?”.
The argument with legs was the one about the double whammy of employer’s NI on top of increased minimum wage (but no change to upper thresholds), along with CGT/Income tax rates being almost equalised at the lower income levels (but no change at higher income levels).
The Liz Truss question came up, and I was able to explain (sort of) about the BoE bond shenigans the day before.
It seems that for my neighbours at least, the “taxes don’t pay for public spending/we CAN afford it as long as we watch out for inflation/interest rates are a v poor way of controlling inflation/current arrangements are going to lead to recession” need repeating, again, and again, and again, at every opportunity by as many of us as possible, and we need to KEEP telling our MPs from the Single Transferable “we can’t afford it” Party, that they’ve been rumbled, not just by us, but by an increasing number of our neighbours too.
I think you are undertaking a fascinating exercise
I was out looking for fieldfare and redwing – and found both.
[…] be felt most keenly by small businesses, many of which are already struggling. As Richard Murphy notes on his blog, “Big businesses can afford to pay, but small businesses rarely pay their owners […]