Chancellor and Business Secretary admit working people WILL suffer as a result of the Budget.

01/11/2024


Workers WILL end up shouldering the majority of the Government’s Employer National Insurance (NI) hikeChancellor Rachel Reeves admitted on Friday, despite standing at the despatch box in the House of Commons on Wednesday and claiming the opposite. She was forced to make the admission after the Office for Budget Responsibility said employers would pass on “most but not all” of the higher tax costs they will be forced to pay on to their employees. As part of her Budget announcing £40bn worth of tax rises, she added 1.2% to employer NI, taking it to 15% from April next year to raise just over £16bn. However, the OBR said: “From 2026-27 onwards, we assume…that 76% of the total cost is passed [on] through lower real wages”. Speaking to BBC Breakfast, Reeves had to acknowledge that the employer NI rise “will have consequences” for both workers and businesses. “It will mean that businesses will have to absorb some of this through profits and it is likely to mean that wage increases might be slightly less than they otherwise would have been,” she conceded, before insisting that “overall, the OBR forecast that household incomes will increase during this Parliament”.

Business Secretary Jonathan Reynolds has also admitted that the increase in employer NI and the minimum wage will hamper businesses, and harm wage growth and hiring. Speaking to Bloomberg TV he agreed these policies will be “something which affects how that business operates, what they can do in terms of recruitment and pay.”

The cost of Government borrowing has risen to a 12-month high as markets have ‘taken fright’ at Reeves’ plans to change fiscal rules to allow the Government to spend an extra £30bn over the next five years. The yield on 10-year gilts rose to 4.526%, although they have retreated slightly since. Also, after a modest rise on Wednesday, the the domestically-focused FTSE 250 sunk 1.6% yesterday, with housebuilders Persimmon, Taylor Wimpey, Barratt Redrow, Vistry Group, and Bellway leading the decline. Because bond yields are used to guide interest rates on loans and mortgages, a higher yield means interest rates are likely to stay higher for longer, and that is bad news for mortgages. Meanwhile, the pound plummeted to a three-month low against the US dollar, losing 0.6% and falling to £1.28. It also fell 0.4% against the euro to €1.18. Reeves, however, was insisting the government's "number one commitment" was "economic and fiscal stability," telling Bloomberg TV that Labour has now “put our public finances on a stable and a solid trajectory”.  

The OBR has also released data showing that almost 8m more people will be dragged into higher tax bands because of Reeves’ continuation of a six-year freeze in income tax thresholds, introduced by former Chancellor Jeremy Hunt, will leave families paying an extra £51bn a year in tax by the end of the decade, and push the number of workers paying tax on their incomes above 40m, for the first time. The watchdog says 4.2m people will start paying basic rate income tax as a result of the freeze that started in 2021; 3m more people will pay the 40p rate; and an extra 600,000 the top 45p rate of tax by 2027-28. The total number of people pushed into higher rate tax brackets is now estimated at 7.8m people, up from 7.1m in the OBR’s March forecast.

Meanwhile, the Institute for Fiscal Studies (IFS) has accused The Treasury of making “nonsense” claims that are “clearly not true” in its 170-page-long Budget document. Twice, the paper states that the Government is “not increasing the basic, higher or additional rates of income tax, National Insurance contributions (NICs) or VAT,” despite saying in the same paper that National Insurance contributions for employers will rise by 1.2% to 15pc. Helen Miller, IFS’s deputy director and head of tax, described the claim that NI would not rise as “ridiculous”. Writing on X, she said: “This is clearly not true. They are very definitely raising NICs!!!”. Her colleague, senior economist Ben Zaranko, said in a separate post: “Is this nonsense even consistent with the civil service code?! Some doublethink [in] the Treasury document… ‘We are not increasing National Insurance Contributions. But also, we are raising £26bn extra per year from National Insurance Contributions’.” John O’Connell, CEO of the TaxPayers’Alliance, also called on Reeves to apologise “for what is clearly a manifesto breach that will do huge harm to taxpayers”.

Charities are warning they face “dire” consequences as a result of the 1.2% hike to employer NI, the Daily Mail reports, consequences including reducing services, cutting staff, or even closing down. It is estimated the tax hike could cost the voluntary sector £1.4bn a year.

Toby Dicker, owner of Chapel Salons, a chain of hairdressers, broke down on Sky News yesterday when talking about how some tax rises introduced in the Budget will affect small businesses like his. “The initial reaction from our supporters to be honest is shellshock,” he told Kay Burley. “It is much, much, much worse than we ever thought it could be.” Before the Budget, Dicker said, he had forecast that the worst case scenario for his business was a £75,000 hit, but the changes announced by the Chancellor will cost him £127,000 he said, citing the 1.2% rise in employer national insurance (NI), the lowering of the threshold at which employers have to pay the tax, and the increase in the minimum wage. Holding back tears, he said: “Employers NIC affects beauty businesses five times more than it affects traditional retail,” he said. “If we have 60 per cent wage cost and someone else has 12 per cent wage costs, for the same given turnover, that’s five times as much.”

The Independent Schools Council (ISC), which represents 1,400 private schools, has announced a legal challenge to the Government’s introduction of VAT on school fees from January next year. Lord David Pannick KC will lead the Judicial Review, brought on behalf of parents, including those with children with special educational needs and disabilities. It is understood he will argue the  policy breaches the European Convention on Human Rights.

The Government’s new ‘value for money’ tsar is to be paid the equivalent of £247,000 a year on a pro-rata basis, it has been revealed, a higher annual wage than the Prime Minister’s £166,786 salary. David Goldstone, who was appointed yesterday as Chairman of the newly-created Office for Value for Money will be renumerated to the tune of £950 per day for an average commitment of one day a week, the Treasury said. However, the Telegraph points out that Goldstone has been responsible for a catalogue of spending failures in previous roles. Most recently, he was on the board of HS2, one of the UK’s most expensive – and over budget – infrastructure projects. He also was responsible for delivering the 2012 Olympics, which went three times over budget. The cost spiralled to £9.35bn. After that job, Goldstone went on to run the London Legacy Development Corporation. Projects there included the London Stadium and East Bank cultural district which also went over budget. Then between 2017 and 2020 he was COO at the Ministry of Defence, a time when the House of Commons’ Public Accounts Committee said the MoD had been guilty of “repeatedly wasting taxpayers’ money” and a Labour report identified £4bn of waste. More recently, he was criticised by the same committee after taking a £168,000 bonus on top of a £311,000 salary for overseeing non-existent renovation work on the Palace of Westminster. Goldstone led the Houses of Parliament Restoration & Renewal Delivery Authority for four years before standing down in August, during which time no renovations took place and decisions on the scope of the project were delayed until at least 2025.

The Chancellor is planning to make the Bank of England (BoE) take climate change as seriously as growth, it has been revealed. In a letter to BoE Governor Andrew Bailey, it is reported Reeves called on Threadneedle Street to reinstate climate change as one of the Bank’s key priorities. Former Chancellor Jeremy Hunt downgraded the significance of climate change for the Bank last year, and Labour vowed in its General Election manifesto to reverse that decision. Former BoE Governor Lord (Mervyn) King has warned climate change is a distraction from fighting inflation. He told The Telegraph last year: “The Bank of England can do nothing about climate change,” and that the institution should focus on interest rates and its core responsibilities.

Prime Minister Sir Keir Starmer is plotting a nanny state ‘latte tax’ on canned coffees and milkshakes, the Telegraph claimed yesterday, ostensibly to “solve the obesity crisis”. The tax, an extension of the sugar tax from sugary drinks to milk-based drinks, would kick in for drinks with more than 5g of sugar per 100ml, however the Government is also planning to lower that current threshold. A canned Costa Coffee Iced Latte contains 5.2g of sugar per 100ml, while a Starbucks Daily Brew Iced Coffee with Milk has 5.8g. M&S Iced Coffee Latte contains 7g per 100ml.

Transport for London (TfL) plans to build giant solar farms to power the capital’s Tube trains, with leafy commuter towns at the end of its underground lines likely to host the new net zero infrastructure, The Telegraph says. The transport company has launched a tender process for developers to build the solar network, which London Mayor Sadiq wants to be built on land near Tube stations so they can be connected directly to the London Underground power system with minimal transmission losses.

Honda and BMW, among other carmakers, have temporarily halted sales in the wake of an Appeal Court ruling in favour of customers in a motor finance scandal that puts banks and other lenders potentially on the hook for billions of pounds in compensation payments. The Telegraph says that Honda ordered showrooms not to deliver vehicles bought via financing deals following the court ruling, and that BMW also told dealerships to pause, although both companies have since resumed deliveries using interim arrangements. On Friday last week Appeal Court judges said commission fees added to financing deals of which customers were not aware, were unlawful. Umesh Samani, chairman of the Independent Motor Dealers Association, told the newspaper the car sales market almost “ground to a halt” on Monday and Tuesday this week because “every single finance company didn’t know what to do”.  Some dealers had been told by customers they did not want to pay a commission, leaving them without a loan and unable to buy the car, he added. Meanwhile, one senior car industry executive warned that if all commission paid on car finance deals over the past 20 years became repayable, it would be “a potential market failure situation”. They added: “You would be looking at a situation where no one would want to provide car finance – or be able to”. The Court of Appeal judgement is likely to open the floodgates for a PPI-style claim rush across the UK, according to Darren Smith, managing director of Courmacs Legal. Lenders could face “30m to 40m” claims over mis-sold car finance after the ruling, possibly outstripping the payment protection insurance (PPI) mis-selling scandal, he said. In total, over 32m complaints were made to firms about PPI. Lenders are appealing to the Supreme Court.

The debt pile at stricken Belfast shipbuilder Harland & Wolff has been revealed to be more than £160m. The 162-year old Titanic builder collapsed into administration last month, with Teneo appointed to oversee the process.  Harland & Wolff had sought funding from the Department of Business and Trade and UK Export Finance in order to begin to fulfil a deal to build new Royal Navy submarines, but this was refused, leading to its collapse.

Reaction Engines has reportedly gone into administration after failing to secure a rescue buyer. Sky News says 173 of the company's 208 staff were made redundant yesterday morning by administrators PricewaterhouseCoopers. The collapse of Reaction, which makes advanced cooling technology for engines also threatens to create a headache for a quartet of Formula One racing teams which use engines supplied by Mercedes-Benz, Sky also says, adding that it appears strategic shareholders BAE Systems and Rolls-Royce Holdings were unwilling to provide enough capital to bail the firm out.

The Guardian Media Group CEO Anna Bateson has told staff that a decision on the controversial sale of sister title The Observer to Tortoise Media will be made by Christmas. Sky News says the group has also assessed the buyer’s shareholders to be “fit and proper” owners of the title.  Journalists at The Guardian have threatened strike action in protest at the proposed sale to Tortoise a loss-making media startup founded by former BBC News boss James HardingThe National Union of Journalists (NUJ) said a consultative ballot would run for the next week.  

BT rivals’ collective losses reached £1.3bn last year as ballooning borrowing costs increased financial pressure in the broadband sectorThe Telegraph reports. The so-called ‘alt-nets’ debt rose from £755m in 2022, mainly because of rising interest rate costs, which account for more than 100% of alt-nets’ turnover on average, according to figures from Enders Analysis. Meanwhile, their combined revenue rose by a third to £361m in 2023, as providers shifted their focus to signing up customers.

Vodafone has announced that its Vodafone Romania subsidiary and Digi Romania have signed a memorandum of understanding (MoU) with the Hellenic Telecommunications Organization (OTE) concerning a potential acquisition of parts of Telekom Romania Mobile. The FTSE 100 telecoms giant said that under the proposed arrangement, Vodafone would acquire the majority of Telekom Romania, including a substantial portion of its assets, while Digi would secure specific assets from the company.

J Sainsbury has agreed to sell the Argos Financial Services (AFS) cards portfolio to NewDay Group for £720m. The FTSE 100 supermarket chain also announced the creation of a partnership with NewDay to create an Argos-branded digital credit offering. The move forms part of its refreshed focus on its core retail business; Sainsbury's has announced previously the sale of its bank's personal loan, credit card and retail deposit portfolios to NatWest Group, and its ATM business to NoteMachine.

French media giant Canal+ has set 16th December as the date for its planned float on the London Stock Exchange. The Paddington producer’s 500-page prospectus for Canal+’s split from rom Paris-based conglomerate Vivendi and its IPO was approved by the Financial Conduct Authority on Wednesday, however the split from current parent company is subject to a shareholder vote on 9th December. It has been reported that the firm is seeking a valuation of up to €8bn (£6.7bn) in its public debut, a valuation that could put it into the FTSE 100; make it the biggest London listing this year; and the largest since GSK and Pfizer spun off healthcare giant Haleon in 2022.

Leon Wang, the president of AstraZeneca’s China division has been placed under investigation by local police and is said to be cooperating with the Chinese authorities. Earlier, the police detained five other current and former AstraZeneca employees as part of a probe into the import of unlicensed medication and potential breaches of data privacy. AstraZeneca is the largest foreign pharmaceutical company in China and makes 12% of its revenues from the country. It has around 15,000 employees in the country, out of a total global workforce of 90,000 staff, The Telegraph says.

And finally, hundreds of Amazon staff in the US have complained executives are “dismissing their humanity” by demanding they return to the office five days per week. They wrote to Matt Garman, CEO of Amazon Web Services, to say they were “appalled” by what they called his “non-data-driven” attack on working from home after he claimed nine in 10 Amazon staff were “quite excited” about coming back to the office full time, and that there was “no substitute” for “getting up on a whiteboard” or “having a brainstorm”. He also implied that if they didn’t want to get back into the office they could  quit, saying “there are other companies around”.

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