Roger Phillips, tax partner at PM+M: Growth depends on a clear and consistent direction - that’s what’s missing at the moment.
It’s highly unusual for a Chancellor to make a speech like this so close to a Budget. Traditionally, they refuse to be drawn and simply tell everyone to ‘wait for Budget Day’. She did that to an extent, and gave nothing away in terms of specific policy, however, the fact that Rachel Reeves has chosen to speak out now suggests she is preparing the ground for some significant announcements on 26 November.
Although the Chancellor mentioned no specific policies, perhaps her refusal to give straight answers to some of the questions from the media following her speech, confirms that she is indeed laying the ground for potentially significant tax hikes, and possibly the breaking of manifesto pledges, and possibly less in the way of spending cuts. She once again reaffirmed her position of sticking to her fiscal rules.
In my view, the government are likely to raise income tax this time around. For too long, successive chancellors have focused on tinkering around the edges like introducing or adjusting smaller taxes that generate relatively modest sums for the Treasury while having a disproportionate impact at the family level. These measures may make headlines, but they don’t move the dial in macroeconomic terms.
The reluctance to confront the main issue, which is largely due to an insistence not to break manifesto promises and manage political sensitivities, has led to a cycle of short-term “fixes.” In truth, an increase in income tax should have happened at least two Budgets ago. Yes, there would have been a backlash, but it would have been better to face that then and be in a stronger economic position now.
Instead, we find ourselves in a situation where the Treasury is continually searching for an extra £20 to £40 billion every six months. This constant uncertainty is damaging for both individuals and businesses. What the economy needs most right now is stability and confidence, but the current messaging from No. 11 Downing Street is doing little to foster either. Growth depends on a clear and consistent direction - that’s what’s missing at the moment.