Today, a former top economist at the Bank of England voiced concerns over the “fiscal fandango” surrounding Rachel Reeves’ Budget, claiming it has led to a state of “paralysis” within the UK economy.
Andy Haldane, who dedicated over three decades to his role at Threadneedle Street, highlighted that rampant speculation about potential tax increases has stalled economic growth in recent months.
As Ms. Reeves prepares to deliver her second Budget this Wednesday, she is confronted with a significant financial shortfall, amounting to billions of pounds, in the public coffers.
In efforts to address this deficit, the Chancellor is anticipated to generate substantial revenue by extending the freeze on income tax thresholds for an additional two years, pushing the timeline to 2030.
Additionally, there are reports she may target salary sacrifice schemes, including pensions, propose a “mansion tax” on high-value properties, and introduce a pay-per-mile charge for electric vehicles.
However, after a tumultuous reversal, it is now believed that Ms. Reeves has abandoned plans for a 2p increase in income tax rates, which would have broken away from Labour’s prior manifesto commitments.
Paul Johnson, the ex-boss of the Institute for Fiscal Studies think tank, was another top expert to blast the Chancellor’s handling of the Budget as he branded it a ‘shambles’.
But one of Ms Reeves’ fellow Cabinet ministers defended the pre-Budget process and blamed the Office for Budget Responsibility (OBR) watchdog for uncertainty.
A former Bank of England chief economist today warned the ‘fiscal fandango’ around Rachel Reeves ‘ Budget had caused ‘paralysis’ in the UK economy .
Andy Haldane, who worked in Threadneedle Street for more than 30 years, said ‘costly’ speculation about tax rises had caused growth to ‘flatline’ in recent months
But Heidi Alexander, one of Ms Reeves’ fellow Cabinet ministers, defended the pre-Budget process and blamed the Office for Budget Responsibility watchdog for uncertainty
Speaking on the BBC’s Sunday With Laura Kuenssberg show ahead of Wednesday’s Budget, Mr Haldane said: ‘We’ve had month upon month of speculation – fiscal fandango, basically.
‘And that’s been costly for the economy. It’s caused paralysis among business and consumers.
‘It’s the single biggest reason why growth has flatlined, it’s been grounded in the second half of the year.’
After announcing a slew of tax rises at her Budget last year, Ms Reeves told businesses she would not be ‘coming back’ with tax hikes in the coming years.
But, as she battles a huge hole in the public finances, she has since paved the way for a series of fresh levy hikes when she reveals her latest fiscal package in three days’ time.
Mr Haldane demanded Ms Reeves’ use her Budget on Wednesday to deliver ‘decisive action that puts to bed and beyond reproach any notion of further tax rises’.
He also called for a ‘re-enginnering’ of the Budget process, which he said was ‘too lengthy, too leaky, with real costs’.
‘So let’s fix, for the forseeable future, the possibility of tax rises and fix the Budget process,’ he added.
Mr Haldane suggested financial markets were concerned about the Labour Government’s ability to control public spending as he warned of a ‘Wile E. Coyote moment’.
It is widely expected that Ms Reeves will splurge around £3billion a year extra on welfare at her Budget by axing the two-child benefit cap in a bid to appease Labour MPs.
‘Financial markets do need to see some signs that this Government is capable of getting its arms around public spending. It really does,’ Mr Haldane said.
‘This is a vulnerable moment. There is a risk of a Wile E. Coyote moment. The ground disappears beneath their feet in the financial markets. That is to be avoided at all costs.’
Lord Ken Clarke, the former Tory chancellor, warned there was a risk of a ‘serious financial crisis’ if the Budget went wrong.
He told Times Radio: ‘We run the risk if we get it wrong, and continue to get it wrong, of a serious financial crisis.
‘It’s all very well saying we’re not going to be in hock to the bond markets.
‘We’ve piled up such a mountain of debt over the last decade or so that we are in hock to the bond markets.’
Lord Clarke added that, ahead of the Budget, Ms Reeves and her team had given the impression ‘they’ve no idea quite what they’re going to do’.
‘They have spread an atmosphere of gloom and dismay and uncertainty,’ he continued.
Mr Johnson criticised the ‘extraordinary’ speculation about Ms Reeves’ plans over the past few months.
‘We’ve had months and months of speculation about this might happen, that might happen – virtually everything might happen,’ he told Sky News.
‘And then, of course, we had the extraordinary U-turn on the U-turn with regards to the manifesto commitment. This is genuinely damaging.
‘The Bank of England, in its latest report, the very first thing it said about the reason for slow growth in the last few months is speculation about the Budget.
‘This has been really poorly handled.’
Asked to sum up the Budget process in a single word, Mr Johnson replied: ‘Shambles.
Tory shadow chancellor Sir Mel Stride on Sunday dismissed Ms Reeves’ objections about ‘mansplaining’ as ‘a smokescreen’
But Transport Secretary Heidi Alexander defended the pre-Budget process, saying it has taken place on ‘shifting sands’.
The Cabinet minister highlighted how the OBR is reported to have to delivered to Ms Reeves a larger-than-expected downgrade to its productivity forecasts.
It is estimated this has left a fresh gap in the public finances of more than £20billion.
‘The review that the OBR have done about the productivity forecasts has meant that this whole process has really taken place on shifting sands to start off with, and we’ve got a very challenging global economic environment,’ Ms Alexander told the BBC.
In a recent newspaper interview, Ms Reeves said she was ‘sick of people mansplaining how to be Chancellor to me’ as she prepares for her Budget.
But Tory shadow chancellor Sir Mel Stride on Sunday dismissed Ms Reeves’ objections as ‘a smokescreen’.
‘This is just all chaff that’s being thrown up in the air,’ he told Sky News. ‘A smokescreen to try and get us off what’s really happening. This isn’t about gender.
‘This is about mismanagement of the economy. And what Rachel Reeves can’t step away from is the fact that we’ve now got unemployment at a five year high, spiralling inflation, people feeling worse off, business confidence rock bottom, anaemic growth.
‘And all of those challenges, which are down to her choices, I’m afraid.’
Sir Mel said he wanted to see Ms Reeves user her Budget to ‘stand up and explain how she is going to control public spending, particularly welfare’
‘In order to make sure that we’re not having to put up taxes and she’s not going to be breaking all these promises that she’s made,’ he added.
