Last Week In Review: A Financial Roundup
Monday?
UK tax level rises to highest on record – OECD
The UK’s tax level has reached a record high, with a total tax-to-GDP ratio of 35.3% for the 2022–23 financial year, a 0.9 percentage point increase from the previous year, according to new data from the OECD (Organisation for Economic Co-operation and Development).
?The UK ranks 16th highest in tax rates among 38 OECD countries. Britain faces the highest property tax level in the developed world, with a ratio of 4% of property taxes to GDP, according to Altus Group. The property taxes include council tax, business rates, stamp duty land tax, and land and building transaction tax.
While Labour attributes the situation to “conservative economic failure,” the Treasury insists the UK’s tax system remains competitive, citing the lowest corporation tax rate and significant allowances.
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Tuesday?
UK pay growth slows as jobs market stalls.
UK pay growth has slowed, decreasing to 7.3% in the three months to October; however, it still outpaces inflation.
Darren Morgan, director of economic statistics at the ONS, cited the months between September and November as the longest period of decline on record. Despite this decline, the overall vacancy total of 949,000 remains well above pre-pandemic levels.
Although inflation has eased to 4.6%, double the Bank’s target, regular pay has grown faster than inflation. The Bank is expected to hold interest rates despite calls for cuts. Chancellor Jeremy Hunt sees the falling inflation and growing real wage as positive, with higher rates leading to increased savings.
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Wednesday?
UK payments regulator proposes cap on Mastercard, Visa cross-border fees.
The UK’s Payment Systems Regulator (PSR) has proposed a provisional cap on cross-border interchange fees charged by Mastercard and Visa on transactions between the UK and the European single market.
The move aims to protect businesses from overpaying, particularly after the cessation of the EU cap on interchange fees in Britain post-Brexit.
The PSR’s interim findings suggest that Mastercard and Visa may have raised fees to an “unduly high level," costing UK businesses an additional ￡150–200 million in 2022, potentially passed on to consumers.
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The proposed time-limited cap is 0.2% on UK-European Economic Area debit transactions and 0.3% on credit transactions, with further analysis to determine a lasting cap.
Visa disputes the findings, emphasising the value of secure digital payments, while Mastercard highlights the competitive market and disagrees with the PSR’s conclusions.
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Thursday?
City stalls UK drive to shorten settlement times for trades
A UK government initiative to enhance the appeal of UK financial markets by reducing trade settlement times has hit an impasse.
The Treasury-appointed task force, part of the “Edinburgh reforms” to make London more attractive post-Brexit, is struggling to reach a consensus on whether to align the new rules with the US or EU regarding the time to finalise securities deals. The current two-day period may be reduced to a next-day settlement.
The disagreement may delay the implementation date, initially set for early 2026, with some stakeholders suggesting a decision after the US shift to a single-day settlement in May 2026.
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Friday?
Markets bet on UK interest rate cuts in 2024 amid recession risk
Financial markets are anticipating that the Bank of England may need to implement a series of interest rate cuts in 2024, driven by the increasing risk of recession.
Despite the Bank’s current stance on keeping borrowing costs high to address persistent inflation, city investors are pricing four quarter-point rate cuts, potentially lowering the base rate from 5.25% to as low as 4.25% by the end of 2024.
The UK’s GDP contracted by 0.3% in October, and signs of economic stress are emerging as households and businesses face sustained pressure from 14 consecutive interest rate increases since December 2021.
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