The markets have decided early this Friday to strongly punish the public debt of the United Kingdom and the pound sterling, due to the umpteenth change of course by the Labor Prime Minister, Keir Starmer, and his economic team. , and, as much as Starmer wants to camouflage his continuous rectifications as an example of good sense, the markets have interpreted that what he conveys is indecision and opportunism.
The latest move from Downing Street, reported on Thursday night by the newspaper Financial Times (FT), has been the decision to back down from the announced increase in income tax for the middle and upper classes. The Minister of the Economy, Rachel Reeves, had advanced this tax increase last week in a speech. but which the experts applauded, as a necessary response to alleviate the current imbalance in public accounts of almost 34,000 million euros.
In the end, the growing unpopularity of Starmer and his Executive that all the polls indicate, and – real or imagined, because none has materialized yet – have once again caused another turn and the consequent crisis.
Sources from the Office for Budget Responsibility (OBR) cited by the FT assure that the Ministry of Economy transmitted its change of plans to the organization through what is technically called “presentation of relevant measures”, as a previous and mandatory step before announcing the next budget on November 26.
The OBR is the independent body that supervises and analyzes the viability and consequences of the economic decisions taken by the Government. Its verdict, which is announced almost at the same time as the budgets, provides a seal of credibility or generates reasonable doubts about the public accounts.
The cited sources have confirmed that Minister Reeves has decided not to go ahead with a proposal – the tax increase – prepared at the time by the economic analysis center Resolution Foundationvery close to the Labor Government, and baptized as Two Up Two Down.
It consisted of raising the middle and high income tax brackets by two percentage points (which the Labor Party promised not to touch in its electoral programme) and reducing employees’ Social Security contributions by another two (in British tax jargon, the national insurance). The result meant, in theory, that the working classes would remain as they were, but in the fiscal balance the collection would increase considerably.
In Reeves’ final proposal delivered to the OBR, the decision to back down on that increase is offset by a miscellany of patches that do not convince experts, and which involves raising the ceiling of some tax brackets to increase income, as well as raising the tax on gaming and betting or the property tax on luxury properties.
Given the unrest unleashed, the Government has explained that its rectification has responded to an apparent improvement in the OBR’s own forecasts, which has reduced the alleged hole in the accounts by almost 15,000 million euros. The markets have calmed slightly by mid-morning and government bonds have regained some strength. The doubts, however, have not been completely dispelled.
“Without the increase in income tax, the rest of the measures included in that package aimed at balancing public accounts are much less credible,” summarized Lee Hardman, chief analyst at financial institution MUFG. “The Government gives the impression of wanting to give priority to its own popularity and its internal political stability over fiscal stability,” he noted.
Reeves, highly questioned within the Labor parliamentary group and the party itself for her apparent iron hand in protecting fiscal orthodoxy, which has translated into social cuts and doses of austerity, is increasingly weaker, despite the fact that the prime minister has publicly committed to keeping her in office until the end of the mandate. from attacks coming from her own ranks.
All this has translated into growing insecurity, with continuous steps back from previously announced measures, both in terms of cuts and tax increases.
The internal threat
As always happens when the direction is not clear in the middle of the gale, Starmer’s team has dedicated itself throughout this week to chasing away alleged ghosts and . Several media outlets published the leak, which according to them arose from the prime minister’s entourage, that Downing Street was prepared to face an alleged challenge to its boss’s leadership. Starmer was going to fight, they said. And they pointed to the Minister of Health, Wes Streeting, as the head of the alleged conspirators, increasingly appreciated by Labor members as the future head of Government.
The minister’s response was a round of interviews on different televisions and radios where he denied being part of the conspiracy and, at the same time, exhibited a political dignity and skill that elevated his position. Meanwhile, Starmer was forced to apologize to Streeting, publicly condemn the leak and try to calm the waters.
With an issue as delicate as public accounts and restless markets, the Government finds itself in the unpleasant situation of having its hands tied when it comes to correcting its own missteps. “The minister will present a budget that contains the right measures to build solid foundations that ensure the future of the United Kingdom,” a spokesperson for the Ministry of the Economy simply stated early on.
Starmer has managed, in fifteen months at the head of Downing Street, to show his vulnerability to voters, who have not seen any apparent change; to the members of his party, disappointed by the lack of determination and the few left-wing policies; and now to the markets, which have begun to smell blood.
