Budget fallout: borrowing costs soar and farmers plot protests
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The cost of UK borrowing hit its highest level of the year today, as bond investors signalled their concerns over the inflationary risks of Labour’s big borrowing spree.
Rachel Reeves’s morning campaign on the radio waves did little to pacify those concerned about the £40 bn tax rise plan - the greatest increase in 30 years - announced in her big budget.
This afternoon, as bond investors processed Labour’s historic “growth plan”, both the ten-year gilt and the two-year edged higher on the day to five-month highs. Additional signs of market concern materialised in the currency domain as the Pound dropped to its lowest level this month after trading at a multi-year high.
The government finance watchdog, the Office of Budgetary Responsibility (OBR), has indicated that policies announced in the Budget will only “temporarily boost” the economy and are likely to increase inflation and interest rates in the short-term. The report concluded that the economy will be "largely unchanged in five years" by the stimulus but added that there are still many “unanswered questions”.
Former conservative chancellor Jermey Hunt interpreted the findings to be indicative of “lower living standards, lower wages, higher inflation, higher mortgages”. While Tory leadership hopefuls Kemi Badenoch and Robert Jenrick blasted the budget’s frontwoman, with the latter going so far as to label Reeves a “compulsive liar” who damaged public trust by going back on Labour’s campaign promise to not raise taxes.
In speaking with BBC Breakfast, Reeves came clean to the fact that her budget will indeed cut into workers’ pay. Downplaying the effects of her national insurance rise from 1.2 to 15 per cent as “increased pressures” on employers, the budget tsar disclosed that “some employers” may give smaller pay rises to workers in the future to cover costs.
While Reeves made the defensive rounds, the Institute for Fiscal Studies’ chair Paul Johnson issued a strong rebuke of her lofty goal of acquiring £25 bn for the Treasury from the jobs tax, stating that her tax raid will only produce £10 bn due to diminished wages. Thus, Johnson’s IFS has cautioned that billions in additional taxes will be required to cover the rising costs of public services.
Over on Jeremey Clarkson’s farm, the budget decision had an equally poor reception as the TV host lambasted Labour’s “shafting” of farmers. Clarkson voiced his concern over the repealing of an inheritance tax relief scheme which will lead to a 20 per cent rise on recipients of family plots which are valued at over £1 mn. A change that some in the industry are warning could spell “the end of the family farm”.
Worse for Labour still is the reality that over 100 red MPs now represent rural districts, where constituents are most likely to be negatively affected by the change.
The National Farmers Union has called the threshold change “disastrous” and potential farmer protests are already being floated online. If they reach the fever pitch of their French or German counterparts, the UK economy could be in serious trouble.
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