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it's almost enough to make you feel
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sorry for the chancellor just days after
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U-turning on welfare cuts because the
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economy has turned a corner and just
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hours after promising a period of
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national renewal official data reveals
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the UK economy shrank in April and
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shrank a lot so where does this leave us
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well welcome to the week in business
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with me Christian May
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if you didn't watch the chancellor
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deliver her spending review you didn't
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miss much it had all the pomp of a
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budget statement with none of the
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substance it was a string of local press
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releases about Southport's pier and
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Kakott's high street with some robotic
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rhetoric thrown in reeves said "In place
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of chaos I choose stability in place of
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decline I choose investment in place of
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pessimism I choose renewal." As the
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spectators Maline Grant put it last
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night she sounded like Francis of Aisi
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on LinkedIn she trumpeted her decision
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to pump 190 billion pounds more into
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public services and an extra 113 billion
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into public investment though in her
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speech she said nothing about the
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spending cuts across government
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departments that will be needed to help
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pay for all this now don't get me wrong
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I'm in favor of clipping Whiteall's
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wings but this wasn't a reforming
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mission this was rearranging the
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recipients of a trillion pounds worth of
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public money to deliver on Labour's
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agenda there were winners and there were
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losers there were also some heroic
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claims about the amount government could
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save through that old favorite of
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politicians efficiency savings
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apparently 14 billion pounds a year can
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be clawed back by being smarter and more
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agile good luck with that and even if
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any of these savings materialize will
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Reeves use them to ease the tax burden
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no she's relying on them to make her
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existing spending plans add up that's
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just one of the many reasons why
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everyone now expects a fresh round of
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tax hikes in October's budget kpmg's
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chief UK economist Yale Selfin said the
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current growth forecast of just 1.2%
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would lead to public sector revenues
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falling below Reeves expectations and
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that's if we even hit 1.2% she said that
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by cementing in substantial increases in
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departmental spending Reefs has made
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further tax rises look increasingly
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inevitable adding that the recent Uturns
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on welfare and higher borrowing costs
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mean that the chancellor may need to
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find an additional 20 billion pounds in
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taxes later this year ruth Gregory from
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Capital Economics predicted that Reeves
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may have to raise as much as 23 billion
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pounds this year if she wishes to avoid
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an adverse reaction in the markets
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adding that whatever happens it's clear
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even harder decisions for Reeves lie
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further down the line meanwhile experts
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at Oxford Economics said that to make
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the fiscal position look healthier the
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government might decide it has some
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scope to pencil in additional current
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spending restraint in 2029 but warned
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that such a move would risk undermining
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the government's fiscal credibility so
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we still expect the government will need
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to implement relatively large tax rises
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in the autumn budget you get the picture
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and we've been saying all this for some
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time at city so where might the
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government target for these tax rises
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well Reeves has ruled out touching
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income tax or VAT and in fact she said
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that she'll never repeat a budget like
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last October's where businesses were
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slapped with tens of billions of pounds
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in additional tax so she either breaks
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that pledge and moves on income tax or
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VAT or she has to get sneaky and target
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pensions for example AJ Bell's Laith
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Califf said tax relief on pensions could
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be for the chop with the reintroduction
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of the pensions lifetime allowance
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abolished by former Chancellor Jeremy
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Hunt potentially on the cards tom Adam
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meanwhile a partner at financial
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advisory firm Blick Rothenberg said
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pensions tax relief currently in place
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makes it a perfect target for tax hikes
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to be introduced with an annual
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allowance reduction lifetime allowance
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reinstatement and salary sacrifice
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abolition all likely in the Treasury's
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crosshairs and then there's our old
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friend fiscal drag the chancellor vowed
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to unfreeze the tax thresholds by the
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end of this parliament liberating
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taxpayers from the nightmare of being
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dragged into higher tax bans by virtue
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of inflation now she could change her
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mind on this it wouldn't bring in any
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ready cash but it would be factored in
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for the years ahead and she may find it
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tempting finally she might look to the
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helpful advice of Deputy Prime Minister
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Angela Raina whose recent memo outlined
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half a dozen taxes she thinks could be
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hiked including on dividends banks and
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inheritance of course it's possible that
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none of this will be necessary the
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economy could rally over the summer
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forecasts could pick up the chancellor
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come October may just squeak through but
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is that likely this week we got
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confirmation that the UK's unemployment
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rate has ticked up again and we now know
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there are a quarter of a million fewer
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payrolled employees in this country
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today than there were this time last
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year tax increases on jobs combined with
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global economic headwinds and Trump's
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tariff mayhem have had an effect of
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course the worrying 0.3% decline in GDP
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in April seems to confirm that the
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relatively good growth we saw at the
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start of this year was indeed a one-off
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and now history is about to repeat
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itself last July the Chancellor and the
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Prime Minister spent months warning the
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country that the October budget would be
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ugly and they allowed weeks and weeks of
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damaging speculation about tax rises to
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business and investor confidence
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that period of uncertainty is now
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acknowledged as having had a real
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negative impact on the economy and now
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unless the chancellor can offer a cast
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iron promise not to increase the tax
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burden the record high tax burden we're
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going to endure exactly the same kind of
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damaging uncertainty again right the way
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through from now until the budget in
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October it seems one year into office
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and no lessons have been learned oh and
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by the way today is tax freedom day that
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is until today every penny the average
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person earned in this country went to
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the Treasury only from today will Brits
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finally start working for themselves and
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the way things are looking next year's
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Tax Freedom Day could come much later in
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the year that's it from me this week
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keep up to date and in the know with the
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city app and on city.com i'll see you
