This morning the UK awoke to the news that Chancellor Rachel Reeves was going to give an emergency television broadcast. To my mind the first issue here is that she felt the need to do so. After all her Budget is due in three weeks when she will have everybody’s attention. As there is no emergency in general I think that the broadcast was to her own Members of Parliament and this is rather extraordinary in itself that apparently she feels this is the only way she can communicate with them.
The next issue here is that the Q&A session was always going to go like this.
Q: You said last year’s £40bn tax-raising Budget was a “once in a parliament” & Lab would “stick to our manifesto commitment, not to increase taxes that working people pay” Do u still stand by those promises. If u won’t aren’t you making a mockery of voters who trusted you?
That was from Beth Rigby off Sky News and it was pretty much a knock-out punch at the bell. The response that “today is not about individual taxes” again raised the question of what was it about? I think the full reply tells us.
I will set out the individual policies of the budget until the 26th of November. That’s not what today is about. Today is about setting the context up for that budget.
So we are being set up for large tax rises. This is confirmed by the way Chancellor Rachel Reeves then started passing blame to others.
And your viewers can see the challenges that we face, the challenges that are on a global nature. And they can also see the challenges in the long-term performance of our economy. And the Office for Budget Responsibility will set all that out. They’ve done the review of the supply side of the economy that looks at the past, but they use the past to predict the future.
You may note the way that Rachel Reeves is downgrading the work of the Office for Budget Responsibility whilst having previously promoted it and later saying she backs it! But the effort to blame global events has problems and one of those came last night from this.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2025 is 4.0 percent on November 3, up from 3.9 percent on October 27. ( Atlanta Fed)
As you can see these “global challenges” do not seem to be affecting the US economy which may well be on its way to a growth spurt. In fact even ECB President Christine Lagarde was singing along to a different tune only on Thursday.
From a monetary policy point of view, we are in a good place. Is it a fixed good place? No. But we will do whatever is needed to make sure that we stay in a good place.
So it is simply an excuse on the road to warming us up for large tax rises. Regular readers will be aware that I have been suggesting for a while that a rise in the basic rate on income tax is likely.This is because it raises enough money although this speech may well be a signal that a rise of 2 pence in the pound to 22 pence is necessary rather than one.
The higher taxes theme was confirmed by the part of the speech that was for financial markets as well as Labour backbenchers.
But no accounting trick can change the basic fact that government debt is sold on financial markets.
There are limits on the price that banks, hedge funds and pension funds are willing to pay for our debt…
…and we are competing constantly with other countries also selling debt .
The more we try and sell, the more it will cost us.
Twisting Reality
We can start with this.
our borrowing costs were in the middle of the pack compared to other advanced economies…
…but now, we have the highest borrowing costs of any G7 country.
There was an effort to blame Liz Truss and Kwasi Kwarteng here. But that is simply not true as UK borrowing costs have risen to heights not seen for many years since her October Budget last year. Also the UK has performed worse than its peers in this area as for example our ten-year yield is around 0.3% higher than the United States as opposed to its normal position of below it.
We saw a repeat of the October 24 Budget Rhetoric with this.
At the Budget last year, I fixed the foundations:
I put the public finances back on a firm footing,
Meanwhile back in the real world here is the latest update on the UK public finances.
Borrowing in the financial year to September 2025 was £99.8 billion; this was £11.5 billion (or 13.1%) more than in the same six-month period of 2024 and the second-highest April to September borrowing since monthly records began in 1993, after that of 2020.
She is borrowing more as she tries to give the impression she is borrowing less. I pointed this out on October 31st last year.
leaving a further £35bn to be funded through higher borrowing. ( in 2026-27)
The same confused rhetoric was repeated this morning.
Provided an urgent cash injection into our faltering public services,
So she has “fixed the foundations” by spending more. I am sure you can all see the flaw here.
Rejected by her back benchers
The reality is that the spending spree which was claimed to be a one-off has become permanent. In fact we are now left wondering if this government can cut spending at all? This is because Labour MPs forced U-Turns on the issue of Winter Fuel Allowance and benefit cuts.
Lies about inflation
Chancellor Rachel Reeves tried to mislead on this issue today.
Inflation has been too slow to come down as supply chains continue to be volatile –
Meaning that the cost of everyday essentials remains too high.
Yet she raised inflation as I pointed out on October 31st last year.
As you can see this is both contractionary ( fewer jobs) and inflationary.
The Bank of England thought so too.
The Budget is provisionally expected to boost CPI inflation by just under ½ of a percentage point at the peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures.
As time has passed we can see that it underestimated the impact.So many businesses simply added the rise in costs to their prices and added to inflation.
Interest-Rates
Thus it is clear that the policies of the Chancellor have lead to UK interest-rates needing to be higher in response to inflation being higher than our peers. So this is in fact only for those who either avoid reality or have no knowledge of the drivers here.
Interest rates, which rose from 0.1% to 5.25% in the last Parliament, have now been cut five times…
…but at 4% they are still a constraint on business borrowing and a burden on family finances.
So for example if we look across to Europe she must be hoping that people will not spot that the ECB has cut interest-rates eight times and they are now 2%. It has been able to do so because inflation there is at 2.2% rather than the UK 3.8%.
Economic growth and energy costs
We did get quite a bit of rhetoric about productivity. The problem for the Chancellor is duo fold, Firstly her gamble of promoting the OBR has backfired.
The OBR rightly make their predictions based on the data that has gone before…
…but I do not believe that our past has to determine our future…
That is how she tries to cover up the reality that if anything she has weakened UK productivity and now she is going to announce tax rises based on an organisation which has been consistently wrong about productivity changing its forecasts.
The area where we could improve things she is going to cling to.
high energy prices
The reality is that this government is committed to ever higher energy prices.
As a result, not only is the government baking in very costly energy for the next 15–20 years, but it is also protecting customers from any benefits that might come from low and stable gas prices. The irony is profound: you really could not make this up. ( Professor Dieter Helm)
Comment
This speech was mainly for two audiences. The first was Labour MPs who are going to have to face voters who have been lied to about tax changes. The Manifesto will have to be abandoned and probably by a rise in the basic rate of income tax.
Next up was bond markets where the Chancellor is hoping the same message will be received.
To build more resilient public finances – with the headroom to withstand global turbulence…
That was another confession that she plans a big tax rise which in another form was repeated here.
If we are to build the future of Britain together, we will all have to contribute to that effort…
…each of us must do our bit for the security of our country and the brightness of its future.
