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Why we're all going to be poorer for longer after the Budget · Week in Business

• 0:00
  SPEAKER_00: Oh, we are so screwed.
• 0:02
  SPEAKER_00: Sorry to kick off on that note, but there's no other way to put it.
• 0:06
  SPEAKER_00: Welcome to the week in business and what a week it's been.
• 0:10
  SPEAKER_00: We're going to talk about the budget, obviously, and we're going to talk about it in three ways.
• 0:14
  SPEAKER_00: We'll look at the politics, the economics, and the policies.
• 0:18
  SPEAKER_00: Let's start with the politics of it.
• 0:20
  SPEAKER_00: Contrast, if you will, yesterday's thin gruel of a budget statement with the Prime Minister's lofty rhetoric and vision for a revolution, for changing, ripping up 40 years of economic consensus, rewiring the state.
• 0:38
  SPEAKER_00: I don't agree with that plan, but it was the plan he set out.
• 0:41
  SPEAKER_00: What we got yesterday was the sort of budget Rachel Reeves would have delivered had she run out of money.
• 0:48
  SPEAKER_00: She had run out of money, so what I mean is had she realized that she'd run out of money.
• 0:53
  SPEAKER_00: Overall, taxes increased by about seven billion quid.
• 0:58
  SPEAKER_00: That obviously follows the 70 billion quid a year tax increases from Rachel Reeves.
• 1:03
  SPEAKER_00: So as I've previously said, the Chancellor was hemmed in by that economic reality and the political reality of Labour's manifesto.
• 1:11
  SPEAKER_00: So it was in the end a very strange event.
• 1:14
  SPEAKER_00: The Chancellor did his best to try to stitch together a coherent narrative about breathing space and helping out here and helping out there.
• 1:22
  SPEAKER_00: But it was a holding statement.
• 1:24
  SPEAKER_00: And holding for what?
• 1:25
  SPEAKER_00: What are we waiting for, if not a general election?
• 1:28
  SPEAKER_00: The policy side of things was all over the shop, really.
• 1:32
  SPEAKER_00: Over a hundred individual measures.
• 1:35
  SPEAKER_00: Minute tinkering, little drops of a million pounds here for that, and two million pounds here for that.
• 1:42
  SPEAKER_00: Everything from tweaking the rules around the financing of company cars to yet more ISA reform to money to counter misogyny in the workplace, to various little schemes and reliefs and levies and new quangos and uh new rules here and there.
• 1:59
  SPEAKER_00: It was a lot of tinkering.
• 2:01
  SPEAKER_00: The big items, of course, was a hundred quid for everyone, every household at least, um, which will be about a quarter of the amount by which energy bills will rise next year.
• 2:11
  SPEAKER_00: That's going to cost a couple of billion quid.
• 2:13
  SPEAKER_00: Paid for largely by a so-called one-off raid on the banking sector.
• 2:18
  SPEAKER_00: Perhaps we'll come back to that.
• 2:20
  SPEAKER_00: Also, tax tweaks, tax increases for landlords.
• 2:24
  SPEAKER_00: Uh, that's the move that everybody who knows anything about this has said will further deter landlords from having rental properties on the market.
• 2:33
  SPEAKER_00: So that's not going to be good for renters.
• 2:36
  SPEAKER_00: So the politics I found very unusual.
• 2:40
  SPEAKER_00: Uh, the Chancellor doing his best to present a coherent narrative, albeit boxed in by context, history, and indeed foundational economics.
• 2:50
  SPEAKER_00: So let's look at the economics of this.
• 2:52
  SPEAKER_00: Our front page today described it as a little box of horrors, and that refers really to the OBR analysis in the red box as much as it does the policies that were announced.
• 3:03
  SPEAKER_00: That analysis is quite breathtakingly grim.
• 3:07
  SPEAKER_00: Just look at next year.
• 3:09
  SPEAKER_00: Growth forecast for next year of 1%, at a time when inflation is forecast to peak at 4%, averaging, according to the OBR, about 3.5%, 3.75% throughout the year.
• 3:22
  SPEAKER_00: There's a word for that.
• 3:23
  SPEAKER_00: It's stagflation, a stagnant economy, higher inflation.
• 3:27
  SPEAKER_00: And the consequences of that, according to the OBR's analysis of the state of our economy and the budget itself, is that they expect no growth in household earnings in 2027-2028.
• 3:41
  SPEAKER_00: They expect a near-term hit to living standards.
• 3:46
  SPEAKER_00: The think tank world analysts and economists chewing over the budget details today as we speak.
• 3:54
  SPEAKER_00: The Resolution Foundation, the left-of-center think tank, has said that average income will be a thousand pounds a year lower by the end of this parliament than it was at the start of it.
• 4:08
  SPEAKER_00: We are going to endure another lost decade.
• 4:13
  SPEAKER_00: From the pandemic to the end of this parliament, we are stagnant, we are hanging on.
• 4:19
  SPEAKER_00: There will be no meaningful improvement in our earnings or our household income or even disposable income taking into account inflation.
• 4:28
  SPEAKER_00: That 1% growth rate is a tragedy.
• 4:32
  SPEAKER_00: The OBR also helpfully looked at a number of other areas of government policy.
• 4:37
  SPEAKER_00: They cast their eye over the Employment Rights Act.
• 4:40
  SPEAKER_00: That old friend, remember that, for the first time.
• 4:43
  SPEAKER_00: We had been saying for a long time that the cumulative impact of all that new employment rights legislation will be very bad.
• 4:50
  SPEAKER_00: The OBR has now looked at it and concluded that it will, uh, taken together, constitute a net negative hit to the economy.
• 4:59
  SPEAKER_00: Well done.
• 5:00
  SPEAKER_00: Well done, government.
• 5:02
  SPEAKER_00: They also looked at house building and said that the cumulative impact of government policy on the house building sector will mean they haven't got a hope in hell of meeting their house building targets.
• 5:13
  SPEAKER_00: Little wonder that house builder share prices have slumped.
• 5:17
  SPEAKER_00: That is another spectacular victory of Whitehall, Westminster, and the government.
• 5:23
  SPEAKER_00: And as it comes to the tax on the banking sector, some people might feel they dodged a bit of a bullet given that the uh 3% increase in the additional corporation tax surcharge on banks is meant to be temporary, just 15 months.
• 5:40
  SPEAKER_00: Um but income tax was meant to be temporary, by the way.
• 5:44
  SPEAKER_00: Um the problem that I have with that policy is that it's capricious.
• 5:49
  SPEAKER_00: It it's it's it's it's taxation on a whim.
• 5:52
  SPEAKER_00: It does not allow for planning, it creates uncertainty, it bakes uncertainty into the tax regime of the most important part of our economy.
• 6:02
  SPEAKER_00: You might not like that, but it's it's basically true.
• 6:04
  SPEAKER_00: Um that's a real problem.
• 6:06
  SPEAKER_00: Um, it's going to cost banks 100, 120, 150 million pounds a year.
• 6:11
  SPEAKER_00: Um, and businesses, of course, don't pay taxes, people do, so customers ultimately.
• 6:16
  SPEAKER_00: But the Chancellor needed to find a little bit of money.
• 6:19
  SPEAKER_00: He dodged a bullet in the bond markets.
• 6:21
  SPEAKER_00: He did, as he said, stick to the fiscal rules.
• 6:24
  SPEAKER_00: Uh, he had a good line about his fiscal headroom.
• 6:27
  SPEAKER_00: He said that's what it's there for.
• 6:28
  SPEAKER_00: Use it when you need it, build it back up when you don't.
• 6:30
  SPEAKER_00: So he's taken that headroom down from 20 odd billion to 15 billion.
• 6:34
  SPEAKER_00: And the bond markets have said, okay, for now, but it's for now because the devil in the detail, the government's entire uh spreadsheet only makes sense if you allow for the extraordinary assumptions on cuts to public spending penciled in for 2028 and beyond.
• 6:54
  SPEAKER_00: Now cast your mind back to what happened when a Labor government tried to shave uh five billion quid off a 300 billion pound welfare bill.
• 7:02
  SPEAKER_00: Labour MPs said no, not going to happen.
• 7:04
  SPEAKER_00: The idea that they will tolerate what they call austerity imposed on the unprotected government departments uh towards the back end of this year, possibly in an election year, is for the birds.
• 7:15
  SPEAKER_00: Now that's not a trick unique to this Chancellor or this government.
• 7:18
  SPEAKER_00: It's what all Chancellors do.
• 7:20
  SPEAKER_00: They make the numbers add up by baking in these hypothetical spending cuts towards the end of the forecast period.
• 7:26
  SPEAKER_00: But it's a sham, it's a nonsense.
• 7:28
  SPEAKER_00: It makes a mockery uh of current government policy when the whole thing is built on uh these ropey, shaky foundations of future policy decisions that just aren't going to happen.
• 7:40
  SPEAKER_00: I mentioned welfare, that's forecast to rise from about£350 billion a year to£430 billion a year by the end of this parliament, uh, and another£25 billion a year.
• 7:52
  SPEAKER_00: £25 billion a year additional on that if the rate of um uh the personal independent payment scheme continues to grow in the rate that it currently is growing.
• 8:03
  SPEAKER_00: So welfare is up, borrowing is set to increase every year over the forecast period, unemployment is forecast to climb north of 5% next year.
• 8:12
  SPEAKER_00: I'm trying to find a silver lining, and I can't.
• 8:17
  SPEAKER_00: Uh this is the worst uh economic forecast position since Labour came to power.
• 8:23
  SPEAKER_00: They did not touch any of the big ticket items that need to be dealt with.
• 8:29
  SPEAKER_00: Uh, I mean, we are well beyond uh trying to restore some credibility by increasing the fiscal headroom by a few billion here, a few billion there.
• 8:39
  SPEAKER_00: We are in a situation that requires urgent and permanent reductions in government expenditure, not least on the welfare bill.
• 8:48
  SPEAKER_00: And I'll end with an observation on welfare because there are two ways to come at this.
• 8:52
  SPEAKER_00: There's what they call the labour way, which is that you reduce the bill by encouraging and training and getting people back into work, and particularly young people back into work, and you know, obviously there's something in that.
• 9:04
  SPEAKER_00: There is another way, which is to say that the welfare system is too generous, it is a disincentive to work in the first place, and that it has to come down.
• 9:14
  SPEAKER_00: And whether you're gonna take the axe to those personal independence payments, or indeed uh the motability scheme or the triple lock, um, it has to happen.
• 9:23
  SPEAKER_00: And while we're at it, I'm afraid you can't stop there.
• 9:26
  SPEAKER_00: You're gonna have to take a serious look at the provision of health care in this country and who pays for it.
• 9:30
  SPEAKER_00: We are in very, very serious economic conditions indeed.
• 9:34
  SPEAKER_00: This was a budget that kicked everything down the road.
• 9:37
  SPEAKER_00: Somebody else's problem, a problem for another day, it's our problem right now.
• 9:41
  SPEAKER_00: It's really very serious indeed.
• 9:44
  SPEAKER_00: So I'm afraid I had no good news to come out of this budget.
• 9:49
  SPEAKER_00: Um, it was, as I say, a combination of deferring and delaying and ignoring the big things, tinkering around the edges, squeezing a bit more money here and there in order to bung every household 100 quid next year.
• 10:04
  SPEAKER_00: Uh, the Chancellor calls that breathing space.
• 10:07
  SPEAKER_00: I say it feels like we're being strangled.
• 10:10
  SPEAKER_00: I'm gonna leave it there.
• 10:11
  SPEAKER_00: I'm sorry I can't cheer you up.
• 10:13
  SPEAKER_00: That's it from me this week.
• 10:15
  SPEAKER_00: Uh stay in the know and up to date with the City AM app and on cityam.com.
• 10:19
  SPEAKER_00: I'll see you next week, and who knows what we'll be talking about then.