Forty minutes before the Autumn Budget was announced by Chancellor Rachel Reeves in the House of Commons, the watchdog Office for Budget Responsibility (OBR) published its analysis of her tax and spending plans, leaking full details of the Budget on its website.
Shadow Chancellor Mel Stride suggested the leak "could constitute a criminal act". The Financial Conduct Authority (FCA) is now investigating the OBR leak.
Reeves has also been accused of "kite flying" policies – deliberately leaking a policy idea to the media to gauge public and market reaction before formally committing to it.
In an unprecedented move, three weeks before the Budget, Chancellor Rachel Reeves gave a press conference at Downing Street in which she signalled she was likely to break Labour’s manifesto pledge, by hiking income tax. Three days later, this was walked back. She called on Labour MPs to “stick together” behind her Budget.
These moments marked the chaos leading up to this Autumn Budget amid mounting concerns for Labour's leadership. Yet, following the announcement, both the UK equity markets and the bond markets appear to have taken the Budget in their stride.
Academics from across City St George's, University of London reacted to the statement:
“Taxing battery-electric vehicles is premature when they make up only 5% of cars on the road,” says Dr James Morris, Senior Lecturer in Journalism and a regular reviewer of electric vehicles (EVs):
The tax on battery-electric vehicles could have a chilling effect on their sales, just as they are really picking up.
This could have unintended economic consequences, such as affecting Nissan’s plan to build a factory for the all-electric Nissan Leaf in Sunderland.
Fossil fuel cars pay for the upkeep of the roads they use through fuel tax but BEVs don’t. In the early stages of electric cars, this was a good incentive for drivers to make the switch and now, a quarter of car sales in the UK are battery electric vehicles.
It was inevitable that battery-electric vehicles (BEVs) pay some form of usage tax eventually. The roads must be maintained somehow. A per mile system seems fair, so the greater road users pay more.
With only 1.7 million cars on UK roads being BEVs, and the average UK car doing 7,000 miles per year, at 3p per mile the government is only going to make about £350 million a year from this.
This will not make a large dent on the black hole in our public finances. If all UK cars were BEVs, the income would be around £7 billion, which is more significant.
“A socialist budget but nothing on growth,” says Keith Pilbeam, Professor of Economics:
This was a socialist budget, which is what you should expect from a socialist government.
The new wealth tax on large houses is a clever move as it leaves most people untouched and the wealthy pay more.
Again, the new rule around pension contributions being subject to National Insurance Contributions (NICs) affects the rich.
While more people paying tax because of the thresholds not changing is not good news, we do need to broaden the UK’s tax base.
However, we did not see anything on growth.
The main point of this budget is to placate the soft left backbenchers in the party and avoid a leadership challenge.
Any pretence of pro-growth or pro-business has been thoroughly dropped in favour of more welfare spending to be paid for by higher taxes.
The only concession to economic reasoning is the appreciation that lots more borrowing is no longer possible.
You see this most clearly with two sets of numbers in the OBR report, which show taxes will rise from 34.7% of GDP to 38.3% and total receipts from 38.9% to 43.4% all by 2030-31. Nearly all the rises will affect the incentive to invest and the UK has already the lowest rate of investment in the G7.
The results can be seen in their breakdown of future income growth from profits and corporate investment which will shrink as shares of GDP.
The ONS admits that the return on capital is already low but the forecast for investment has been revised substantially upwards.
Potential output has been upgraded but as the years go by this is largely down to increases in total factor productivity. This is something that is measured as a residual after capital and labour inputs have been accounted for, so any forward forecast years ahead is not much more than guesswork.
“Why not subsidise high-power AI data centres in Scotland?” asks Joseph Pearlman, Professor of Macroeconomics:
An imaginative proposal that Rachel Reeves could implement at any time concerns the lack of capacity of the grid to transmit power down south from wind turbines off the Scottish coast during high winds.
Given the high power demand of AI data centres, why not offer a subsidy to build these in Scotland and utilise this power that would otherwise be turned off? The new centres could also replace some of the jobs lost from the gradual demise of North Sea oil.
The mansion tax is an obvious progressive tax that is unlikely to change the investment behaviour of the better off, but Rachel Reeves should have grasped the nettle and coupled this with scrapping stamp duty, which is an impediment to labour mobility.
Having touted the proposals of Tim Leunig earlier in the year, she should have implemented them in full. They would have spurred growth because people would have been happier to move around the country for new jobs.
A minor benefit of the mansion tax is that the cash-poor retirees who live in large houses will sell them, thereby releasing a surplus of bedrooms on to the market; this will both lower prices and lead to lower requirement for new houses.
“To what extent should Treasury policy be constrained by the OBR’s inaccurate forecast?” asks Steve Schifferes, Honorary Research Fellow in Financial Journalism:
Rachel Reeves’ second budget demonstrates the difficulty she faces in meeting her three competing priorities – to increase living standards, to improve public services, and to meet her ‘ironclad’ fiscal rules.
The underlying question raised by this budget – exacerbated by the mistaken release of the OBR forecast ahead of the budget statement – is to what extent Treasury policy should be constrained by a forecast that even the OBR’s former boss admits is unlikely to be accurate.
The former head of the Office for Budget Responsibility, Robert Chote, was quite clear that that ‘the chances of any economic or fiscal forecast being accurate in every dimension are infinitesimally small.’
The government has already changed its ‘ironclad’ fiscal rules twice – last year to exclude investment spending, and this time to state that there will only be one fiscal forecast a year. More flexibility in applying the fiscal rules would give the government more scope to pursue its more electorally popular objectives of higher living standards and better public services.
"Why undermine higher education – one of the UK's strongest export sectors – without even taking credit for it?" asks Professor Diana Beech, Director of the Finsbury Institute.
She spoke to Times Higher Education (THE) about the government's new international student levy. Part of the new levy's fund will be put towards reintroducing maintenance loans. She said:
Why undermine one of the UK’s strongest export sectors without even gaining political credit for it – whether that’s by framing the levy as a tough stance on immigration or as a much-needed boost for disadvantaged students?
By going about this policy in such a hush-hush way, the levy will simply tax legitimate, highly skilled migration under the radar and heap further pressure on universities already in financial distress.
The per-student flat fee risks hitting those institutions least able to absorb the cost, given the lack of price elasticity outside the elite end of the sector.
