Chancellor Rachel Reeves has confirmed she will change the way the Government’s debt is measured to allow her the Treasury to borrow up to £50bn more to fund investment projects of her choice. During a visit to the International Monetary Fund’s annual meeting in Washington DC, she told reporters she will adopt a model that considers the expected future gains from investments funded through borrowing, rather than just their upfront cost. However, she insisted there will be “guardrails” in place and pledged not to use “all of the headroom available” to her. Nevertheless, the announcement pushed the yield on 10-year UK bonds up three basis points in early trading to 4.21%; elsewhere in Europe the cost of government debt is falling amid expectations of further interest rate cuts by the European Central Bank. “The OBR [Office for Budget Responsibility] and the Chancellor need to convince the markets that her debt rule change is best for the country and will reap growth benefits, otherwise UK bond markets could get spooked,” Kathleen Brooks, research director at trading company XTB told the Telegraph. Reeves has also now made it less likely the Bank of England will cut interest rates next month: Shadow chancellor Jeremy Hunt said Reeves’ actions were “irresponsible” and could push up mortgage costs because “increasing borrowing meant interest rates would be higher for longer”. He also said it was “remarkable” that she had not seen fit to first announce such a major fiscal change to Parliament. Former City Minister Andrew Griffith compared Reeves’s plan to borrow more to “breaking promises like a runaway horse charging through jumps at the Grand National”. Before the General Election she had pledged she was “not going to fiddle the figures or make something to get different results,” he said.

Prime Minister Sir Keir Starmer has suggested that buy-to-let landlords and shareholders may be hit with tax rises in next week’s Budget because they are not ‘working people’ who will be covered by Labour’s General Election manifesto pledge to protect workers from tax hikes. Asked by Sky News during his visit to the Commonwealth heads of government summit in Samoa whether “someone who works but gets their income from assets as well such as shares and property” was a working person, Starmer said: “Well, they wouldn’t come within my definition. I think people watching this will know whether they’re in that group or not.” His definition covers “those people who work hard and are anxious about whether they can make ends meet, and know that should something happen to them and their family they can’t write a cheque to get out of the problem,” he said. Before the election, Starmer said much the same, suggesting he didn’t believe those who had savings or didn’t have to rely on public services were working people.  Labour has also suggested that those earning over £100,000 per year do not qualify.

The Chancellor has been warned by the Centre for Policy Studies (CPS) that she will be playing a “dangerous game” if she hikes Capital Gains Tax (CGT) because it could prompt “an exodus of wealthy investors, entrepreneurs and job creators from the UK” and end up diminishing revenue. The CPS points out that of the £14bn raised by CGT last year, 80% of revenue came from just 38,000 people, meaning is particularly sensitive to behavioural changes. Daniel Herring, tax and fiscal policy researcher at the CPS, said: “Labour is playing a dangerous game with capital gains tax. The full effects are uncertain, but it is very possible that any rise in CGT will raise much less revenue than analyses suggest, and could very easily be revenue-negative”. He added that raising the tax would also be “bad for growth,” as well as potentially making the current fiscal situation “even worse”. The Treasury has itself estimated that putting CGT up by 10% could lower revenue by £2bn over three years. City analysts have also warned hiking CGT risks triggering a sell-off in shares and could dissuade investors from selling to their assets in the long term to dodge any increase, as CGT is not payable on death. Just over a week ago, 450 fintech entrepreneurs wrote a letter to the Chancellor warning they may be forced to relocate out of the UK if Reeves goes ahead with a raise. Currently, no tax is payable on assets generating profit of up to £3,000, but thereafter CGT is paid at a rate of between 10% and 28% depending on what asset is sold and what rate of income tax is paid by the person benefitting from the sale.

The British Beer and Pub Association (BBPA) fears its industry will face an extra £310m bill after the Budget, if the Chancellor hikes Business Rates and Beer Duty. These additional costs will stifle already precarious growth and threaten jobs, the BBPA said, noting that around 1m workers are employed within the sector. BBPA CEO Emma McClarkin warned: “The clock is ticking on this government to uphold their pre-election promise to support our industry,” she said, adding” “The government must be clear-eyed about the staggering extra costs which will choke growth, be bad for business, and risk people’s livelihoods. Our industry pours billions into the economy, forms the backbone of the UK job market and is a cornerstone of the community. Yet with pubs making an average of just 12p a pint thanks to the huge cost of doing business, it is in a fragile state.” The BBPA wants to see the current system of Business Rates Relief for the hospitality sector continue and beer duty cut.

Another study shows how concerned people are about Rachel Reeves’ forthcoming Budget; according to GFK’s long-running tracker of household mood, consumer confidence has deteriorated sharply, plummeting to its lowest level this year. Consumers are “despondent” when they consider their financial situation, the health of the wider economy and Britain’s growth prospect, he said, despite the fall in the headline rate of inflation. “This month’s Consumer Confidence Barometer paints a picture of people holding their breath to see what’s in store for them on October 30,” he added.

Among those who will benefit from Rachel Reeves’ Budget, however, are ‘green’ businesses that buy critical materials for use in manufacturing in the UK. The Telegraph reports that she will seek to end Britain’s net zero dependence on China by handing state loans to importers of minerals used in car batteries and solar panels. A government source told the newspaper: “As businesses over the world rush to secure the critical minerals needed to make everything from phones to electric vehicles, the Government is helping UK firms secure the supply they need. This addresses a gap in the UK’s existing financial support for manufacturers looking to secure these key minerals, who previously would not have been able to access government support in order to do so.”

Thames Water has secured a £3bn loan to give it more time to restructure its near-£16bn debt pile.  Thames Water CEO Chris Weston said the new loan has put the firm "onto a more stable financial footing as we seek a long-term solution to our financial resilience". Without this loan, the water company apparently had just £500m in cash.

The Financial Conduct Authority (FCA) says it has uncovered a sharp rise in non-financial misconduct at City firms, but that companies took no action in response to more than half of all investigations. The FCA says its survey of more than 1,028 companies in February found that between 2021 and 2023, non-financial misconduct reports among wholesale banks, brokers, insurers and market intermediaries rose from 1,363 to 2,347, when employees returned to the office after Covid-19 lockdowns. Bullying and harassment alongside discrimination were the most recorded concerns over the three year period, making up 26 % and 23% of reports, respectively. “Other” complaints made up 41% of the total, a category that included intoxication, offensive language, data protection breaches, bringing pets into work and misusing gifts and hospitality, which could also be considered financial misconduct. The FCA said the survey could suggest problems within the industry, but could also indicate a healthy corporate culture where employees feel they can speak up.

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