Good afternoon from New Economy Brief.
The upcoming Autumn Budget is Prime Minister Andy Burnham’s first major rodeo to deliver on his election battleground promises to deliver a reset for Britain. It comes amid a heightened focus on the cost of living as prices for essentials spike yet again.
What’s happening: With the Budget almost upon us, Burnham – and his chancellor, John Healey – face their first real test of how they will break ground on their promised ‘reset’. Here is a rundown of some of the key things we’re keeping an eye on come Halloween.
First up, spooky season with the bond markets.
Major spending announcements or unfunded tax cuts have caused a stir at recent fiscal events, giving Chancellors goosebumps about gilt yields rising sharply– most infamously, around Kwasi Kwarteng and Liz Truss' 2022 mini-budget. When gilt (bond) yields (interest rates) increase, it drives up the cost of government borrowing and servicing the national debt. Heading into October, gilt yields had jumped to their highest since 1998, driven by global pressures.
Having to avoid spooking the bond market restricts the Chancellor’s options, alongside the fiscal rules (like day-to-day spending needing to be covered by revenues by 2029-30) and manifesto pledges such as not raising income tax, national insurance or VAT. Although Healey will have welcomed news that the bond markets may be ok with less fiscal headroom – a smaller buffer against breaching its fiscal rules – than anticipated.
A resignation of principle?
With the former Defence Secretary now leading the Treasury, there will be enormous scrutiny of what Healey announces on defence spending. His resignation on the matter was a key moment in Starmer’s undoing, and now it's landed him the second most powerful job in government. Those with good memories will recall Healey wanted a commitment to spending 3% of GDP on defence by 2030, ahead of the pledged 3.5% by 2035.
Try, try and try again.
Welfare reform is on the menu. At the Labour conference Healey described a “system which offers an income but doesn’t offer a future”. He suggested the onus is on getting people into work, including a new apprenticeship scheme led by Mayors, and likely changes to social security. Options mooted include cutting the health element of universal credit for under 25s, replacing the Personal Independence Payment (PIP) and changing the Motability scheme. Keep your eyes peeled for the Timms Review – more detail in our recent issue. There’s also been plenty of discussion of the decade-high number of young people who aren’t in education, employment of training (otherwise referred to as NEETS), and the way to address it.
Rules were meant to be broken.
In September Healey gave his first major speech as Chancellor. Alongside firm nods to good growth, devolution and his steadfast commitment to the fiscal rules, he gave a good hint at how he might try and circumvent the guardrails. Enter Britain’s Public Financial Institutions (PuFins), like the National Wealth Fund (NWF). These are state-owned bodies that can lend and invest, and could be a key way for Burnham’s government to get serious cash into big priority projects like housing construction and devolved job creation without breaking the fiscal rules. As it stands, the PuFins lag far behind European neighbours in their level of investment. Catching up would mean the NWF investing £21bn a year – four times its current annual cap. Clearly, there is room for manoeuvre if the Chancellor grasps it.
Devolution calling.
The government is expected to publish a fiscal devolution roadmap, including a timetable for rollout. This is expected to include steps like apportioning a devolved share of income tax to replace some strategic authority funding, and further devolving business rates to councils. These measures would bring the UK closer to comparable economies; welcome news as fiscal devolution correlates with higher wages. The Centre for Cities has an essential primer on how the government can do it well. Questions remain over whether strategic authorities will have the expertise and resources to handle the additional demands – or whether county councils will be included in devolution plans – to manage tax responsibilities in-house.
Third tax lucky?
With less fiscal headroom and pressure from all directions, Healey and Burnham may turn to taxation changes to raise revenue for spending. Several options have been heavily trailed in the press, including changes to Capital Gains Tax – bringing it closer or equal to income tax rates. Another possibility is taxing the continued bumper profits of UK banks. But though a number of big ticket projects need money, Burnham seems reluctant to raise taxes again.
National Health Care Service.
This is a long-held cornerstone of Burnham’s political ideology. At Labour’s Autumn party conference, the PM spoke effusively about the need to transform care into a service akin to the NHS, free at the point of use and paid for by taxation. But here’s the catch: the government has confirmed that it will only apply to those over 65, leaving out working age (or younger) disabled people and others with care needs. This is promised under a potential second term, and will be paid for by changes to the triple lock; some are calling for Burnham to move quicker and have the ‘courage of his convictions’.
The cost of staying alive.
The early days of Burnham’s premiership saw a flurry of smaller announcements designed to give a bit of breathing room. But as the Budget nears, the energy cap is being raised, and Cornwall Insight has predicted a mammoth increase to hit this winter, sending prices soaring past 2022/23 levels. As covered in last week’s NEB, campaigners are dialing up the pressure, having called on the government to take serious action on the cost of living.
Why does it matter? More in Common recently found that Britons’ appetite for radical change has grown since 2024, and now more than two in five favour radical rather than incremental change. This growing desire is particularly pronounced among Labour’s 2024 voters. With strong headwinds and pressures from all directions – not least on the cost of living – Burnham and his team will be under intense scrutiny at the Budget.
Labour are now leading the polls, with their highest rating since November 2024, and the public see Burnham more favourably than any PM in the last six years. But this could change very quickly if voters don’t see a Budget that delivers for them. While expectations are being managed for a more restrained budget, rhetoric around larger ticket items, such as the National Care Service and electoral reform, continue to fuel speculation of a snap election on the horizon, giving Burnham his own mandate.
TaxWatch has investigated a cluster of websites offering offshore tax, asset protection, crypto privacy tools and multiple-residency services to retail consumers. They describe this as a ‘New Offshore’ market where international tax and asset protection services are sold through digital content and newsletters rather than the traditional world of professional advisors.
The Fairness Foundation argues we should reframe the UK’s wealth inequality problem. Hidden Wiring proposes wealth inequality isn’t a single policy problem, but that its harms should instead be understood through three distinct but mutually reinforcing aspects: extreme wealth concentration, lack of wealth and the wealth gap across the distribution. The report introduces a framework to separate these three harmful aspects as a starting point for policy discussions.
Dirty money and illicit financial flows wash through the city of London and other major financial hubs. Tax Justice Network has built a dashboard with a world map showing the estimated flows moving around the globe in real time. These are divided between the two main actors responsible: corporations shifting profits, and individuals hiding offshore financial wealth.
Examines how England taxes residential property and sets out a roadmap for replacing Council Tax and Stamp Duty with a system that is fairer, more efficient, and does not penalise the parts of the country where house prices have risen least. The solution put forward is a proportional tax charged at 0.7% of property value, paid by occupiers, with rebates to protect poorer households and defer bills for those who are asset-rich but cash-poor.
Tax arms company windfalls for reparations for Yemen CAAT and the Transition Security Project argue that Britain should pay reparations to the people of Yemen for its role in crimes committed against them during the Yemeni civil war. These should be part-funded by a windfall tax on the British arms companies who supplied the weapons, spare parts, training and engineering support.
With Burnham’s recent announcement about his vision for the National Care Service the Women’s Budget Group’s recent concept note makes the timely case for a social insurance model to pay for care across the country. The CarePool model pools the risk and costs across the population to provide a social insurance-style safety net for everyone.
