UK government borrowing costs rose sharply on Friday as a shock decision by chancellor Rachel Reeves to ditch a planned income tax rise hit market confidence in her Budget and fuelled a crisis engulfing the Labour administration.
Reeves and Prime Minister Sir Keir Starmer this week decided to rip up the Budget, partly as a result of improved economic forecasts but also because they got cold feet about breaking an election pledge not to raise income tax rates.
One senior government official said: “I won’t deny politics was a factor. But the changing economics meant that the political argument for breaking the manifesto was weaker.
“We went from a position where we absolutely had to put up income tax to a situation where we could close the fiscal gap in another way. Breaking a manifesto is only something you do in extremis.”
The comments supported market suspicions that a weak prime minister is being deterred from taking tough fiscal decisions by a fear of antagonising mutinous Labour MPs and a British public that already dislikes his government.
Gilts sold off despite efforts by government insiders on Friday to signal that the planned increase in income tax rates had been pulled because of more positive fiscal forecasts from the Office for Budget Responsibility.
Ten-year gilt yields, the benchmark for the UK’s long-term borrowing costs, rose 0.14 percentage points to 4.58 per cent, after the Financial Times revealed on Thursday night that the income tax rise planned for the Budget had been ditched.
Line chart of 10-year gilt yield (%) showing gilt yields jump on income tax U-turn
Instead, Reeves will build a painful fiscal consolidation on a two-year freeze to personal tax thresholds, which analysts think could raise between £8bn and £10bn a year, and a host of other measures.
lionmoose on
You and me both
Desperate_Wear_1866 on
!ping UK
WAGRAMWAGRAM on
> Government prmise not to increase tax
> Markets don’t like that
I’m not saying to go full Truss on fucking the bond markets but maybe don’t make them your sole factor?
4 Comments
UK government borrowing costs rose sharply on Friday as a shock decision by chancellor Rachel Reeves to ditch a planned income tax rise hit market confidence in her Budget and fuelled a crisis engulfing the Labour administration.
Reeves and Prime Minister Sir Keir Starmer this week decided to rip up the Budget, partly as a result of improved economic forecasts but also because they got cold feet about breaking an election pledge not to raise income tax rates.
One senior government official said: “I won’t deny politics was a factor. But the changing economics meant that the political argument for breaking the manifesto was weaker.
“We went from a position where we absolutely had to put up income tax to a situation where we could close the fiscal gap in another way. Breaking a manifesto is only something you do in extremis.”
The comments supported market suspicions that a weak prime minister is being deterred from taking tough fiscal decisions by a fear of antagonising mutinous Labour MPs and a British public that already dislikes his government.
Gilts sold off despite efforts by government insiders on Friday to signal that the planned increase in income tax rates had been pulled because of more positive fiscal forecasts from the Office for Budget Responsibility.
Ten-year gilt yields, the benchmark for the UK’s long-term borrowing costs, rose 0.14 percentage points to 4.58 per cent, after the Financial Times revealed on Thursday night that the income tax rise planned for the Budget had been ditched.
Line chart of 10-year gilt yield (%) showing gilt yields jump on income tax U-turn
Instead, Reeves will build a painful fiscal consolidation on a two-year freeze to personal tax thresholds, which analysts think could raise between £8bn and £10bn a year, and a host of other measures.
You and me both
!ping UK
> Government prmise not to increase tax
> Markets don’t like that
I’m not saying to go full Truss on fucking the bond markets but maybe don’t make them your sole factor?