UK budget: big tax and spending hikes, but little growth
Everything about British chancellor Rachel Reeves' first budget was significant: the ￡40 billion (€47.8 billion) in tax rises, such as a big hike in employers’ national insurance, a ￡25.7 billion jump in health spending, the ￡100 billion rise in public investment over five years, the pathway to a record-high tax take of 38 per cent of the size of the economy. Everything, that is, except for the projected impact of such largesse on the underlying strength of the British economy.
The Labour Party won July’s election by promising to spur significant and sustained economic growth to finance “a decade of national renewal”. Instead, an independent analysis by the Office for Budget Responsibility (OBR) suggests Britain may only get a two-year sugar high by 2026.
Anaemic growth caused by underinvestment has been a feature of Britain’s economy for close to 15 years. Reeves had hoped to seize the narrative by loosening borrowing rules to invest in rail, roads and housing. Yet the OBR analysis casts doubt on the potential payoff.
In March the OBR said growth this year would be just 0.8 per cent. Now it says it will be 1.1 per cent. Next year the projection rises from 1.9 to 2 per cent. After that the rate tapers off, as the tax raid planned by Reeves eats into demand: growth of 1.8 per cent in 2026 is down from a March projection of 2 per cent. Expansion by just 1.5 per cent in 2027 is also below a March projection of 1.8 per cent.
The OBR party poopers predicted Labour would breach a central campaign pledge to achieve the highest growth in the G7 for two consecutive years by the end of the five-year parliament. Instead, it suggested Britain is on course to hit second spot by 2029 and would average third over the period.
Buried deep in the OBR’s latest 200-page economic and fiscal outlook is a table that suggests the outlook in the long run, from 2030 onwards, may be rosier for the British economy as Reeves’s investment finally starts to have an impact. By then it could be too late for Labour, politically, with a new election due in 2029 that it must win if it is to be in charge for the decade of renewal it promised.
This must be why Labour pulled the closest it had to a rabbit from a hat: an ongoing freeze in income tax thresholds will now end in 2028-29, which should give a boost to Britons’ pay packets just in time for the next election.
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“Nike has always been a core part of who I am,” said Elliott Hill when the sportswear company anointed him chief executive last month. This was not pure spin. After all Hill started at Nike as an intern.
The appointment is a vote of confidence in the “CEO lifer”, a small cohort of top executives including General Motors’ Mary Barra; Dave McKay at Canadian bank RBC; and Walmart’s Doug McMillon, who have risen through the ranks of their companies over the course of many years.
Hill has spent his working life at Nike, except for a spell as a trainer at the Dallas Cowboys American football team. By selecting him to succeed John Donahoe, who had come from a tech background, previously leading eBay, the US company signalled a renewed focus on core products and a commitment to its culture.
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Company lifers can bring substantial advantages to a business, says Claudius Hildebrand, co-author of The Life Cycle of a CEO and consultant at Spencer Stuart, an executive search firm. “They foster continuity and enhance morale as employees see clear pathways for their progression, which cultivates loyalty.” They have established relationships with shareholders, financiers and customers.
The risk, however, is that executives who have spent their whole career in one company may have tunnel vision and stifle innovation due to a lack of exposure to outside ideas and influences.
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Survivors of the worst natural disaster to hit Spain this century awoke to scenes of devastation on Thursday after villages were wiped out by monstrous flash floods that claimed at least 95 lives. The aftermath looked eerily similar to the damage left by a strong hurricane or tsunami.
The death toll could rise as search efforts continue with an unknown number of people still missing. More than a thousand soldiers from Spain’s emergency rescue units joined regional and local emergency workers in the search for bodies and survivors.
The region remained partly isolated with several roads cut off and train lines interrupted, including the high-speed service to Madrid, which officials say will not be repaired for several days. Spanish prime minister Pedro Sánchez is heading to the region to witness the destruction first hand as the nation starts a three-day period of official mourning.
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Is Ireland’s construction sector ready for Ryanair-type disruption? The Irish Times’ Inside Business podcast this week takes a slightly left-field look at potential solutions to Ireland’s enduring housing crisis. Paul Mitchell, director of construction consultancy Mitchell McDermott joins Ciaran Hancock.
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US election aside, there are a clatter of results and trading statements from listed Irish businesses next week, including CRH, Ryanair, AIB and Kingspan, as well as what are likely to be the last exchequer returns before a general election. That, of course, means there will also be a push to get the Finance and Social Welfare Bills through the Oireachtas during the week.
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