UK budget risks leaving investors in the dark: Mike Peacock
TLT•Mike Peacock argues that the UK government’s budget may leave investors uncertain about its fiscal plans, as it defers major spending decisions. The government faces a fiscal rule, a defence spending target that could require up to £35 billion in tax rises or welfare cuts, and debt-interest payments of £110 billion in 2025/26.
1. Fiscal plans in question
The UK government risks leaving investors uncertain by putting forward a “do no harm” budget and deferring major public spending decisions until next year, Mike Peacock writes. Prime Minister Andy Burnham has outlined policy plans from 2030 onwards but, the article says, has offered few plans for the next three years and no comprehensive growth strategy.
2. Spending pressures
Finance Minister John Healey must meet a fiscal rule requiring day-to-day spending to balance with tax revenue within three years while avoiding harm to growth before the next national election, due by 2029. The Institute for Fiscal Studies estimates that meeting a defence spending target of 3% of GDP by 2030 could require tax rises or welfare cuts of up to £35 billion ($46.8 billion). Healey must also find almost £5 billion for existing defence commitments.
3. Debt and bond concerns
The article says the government may raise taxes on banks to fund measures to ease energy costs, while lenders may pass costs on through higher loan rates and lower savings rates. Healey’s fiscal headroom, previously around £24 billion, may have halved following a bond selloff, higher inflation and new spending commitments. The Office for Budget Responsibility calculated that Britain would pay £110 billion in debt-interest payments in 2025/26.
