On October 30, chancellor Rachel Reeves hit the UK economy with £40billion worth of taxes, and an extra £31.5billion worth of borrowing.
In doing so, she was taking a massive risk. Taxes will squeeze economic growth, which has already collapsed under Labour’s watch.
Borrowing even more money will drive up the cost of servicing our towering national debt.
We knew things were bad but today we’ve learned the UK finances are in an even worse state than we feared.
The UK borrowed a staggering £17.4billion in October, the second highest figure for the month since records began in 1993.
That was way above the £12.3billion City economists had forecast.
In a further blow to Reeves, more than half of that £17.4billion is made up of interest repayments on the UK’s national debt.
We spent an unbelievable £9.1billion servicing our debts last month, the highest October figure on record. What a waste of taxpayer cash that is.
Today, the UK owes £2.8 trillion. That’s roughly the same size as our annual economic output. Which is terrifying.
The financial crisis, which happened under Labour, and the pandemic, which happened under the Tories, are the main culprits. Both parties are to blame.
Reeves inherited the problem. However, it’s her job to deal with it and since the election she’s made one blunder after another, which are only making things worse.
I’ll keep this brief and name just one. In her Budget, Reeves hiked employer’s National Insurance (NI) charges by £25billion in a move that will destroy jobs, wages and growth.
It will also drive inflation back up. From 1.7% in September to 3% next year, according to the Bank of England. And that, my friends, will make the cost of servicing our debt even more onerous.
Alex Kerr, an economist at consultancy Capital Economics, is warning that if Reeves wants to increase spending “she may need to raise taxes to pay for it”.
Surprise, surprise.
Matt Swannell, chief economic adviser to the EY Item Club, also warns that Reeves may need to hike taxes again “if the tax take disappoints or spending proves higher”.
Both now seem inevitable to me.
Labour didn’t come into power to cut public services or state benefits, but as we’ve seen, it’s ready to hike taxes. Even though state spending makes up a record 45% of UK economy.
There’s a problem, though. As we’ll see when the Budget NI hikes come into force next April, Labour’s taxes will further destroy growth.
There was a fascinating nugget in today’s figures. Under the Tories, former chancellor Jeremy Hunt made two big cuts to personal NI contributions.
This was expected to cut tax receipts. Except it didn’t, according to the Office for National Statistics today. The tax take held up, as people felt better off, spent a bit more money, boosted businesses, and got the economy moving.
Reeves is taking the opposite approach. And when her next tax bombshell explodes, it’ll destroy even more growth. This can’t end well.
