Tag: Rachel Reeves

Increase in national insurance contributions and national living wage will add to costs, says BRC 

Large UK retailers including Tesco, Boots, Marks & Spencer and Next have written to Rachel Reeves to say that a £7bn increase in annual costs after last month’s budget would lead to job cuts and higher prices. 

The letter, with 79 signatories sent by the industry body the British Retail Consortium (BRC), warns the chancellor of the financial impact of the impending increase in the national living wage and employer national insurance contributions (NICs). 

The BRC has said absorbing the impact of the higher costs will mean higher prices for consumers, smaller pay rises, job cuts and store closures. 

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“For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale,” the letter says. “The effect will be to increase inflation, slow pay growth, cause shop closures and reduce jobs, especially at the entry level. This will impact high streets and customers right across the country.” 

The letter says retailers are already starting to make “difficult decisions” and “the sheer scale of new costs and the speed with which they occur create a cumulative burden that will make job losses inevitable, and higher prices a certainty”. 

Andrew Bailey, the governor of the Bank of England, told the Treasury committee on Tuesday that retailers were right to warn on the risk of job cuts due to the change in NICs. 

He added that job losses could turn out to be more than the 50,000 forecast by the Office for Budget Responsibility (OBR) after the budget. 

“I think they are right to say… there is a risk [that] the reduction in employment could be more,” he said. “Yes, that is a risk” 

The bank’s broad position is that the impact of the changes to NICs will feed through in several ways – higher prices, lower profit margins, lower wages, job cuts, or “increased productivity”. 

However, the GMB union has said that big retailers warning of job cuts due to the tax changes is “utterly pathetic”. Nadine Houghton, a national officer at the GMB, said: “Multibillion-pound businesses pleading poverty because they’re being made to pay more to support public services is utterly pathetic. 

“Most of these companies’ fortunes are already subsidised by the taxpayer, they pay very low wages which then have to be topped up by in work benefits. It’s only right that they should now contribute a bit more to rebuilding our country.” 

Nick Stowe, the chief executive of Monsoon and Accessorize, said retailers had been left with the choice of protecting staff numbers or cancelling their investment plans. 

The fashion retailers’ boss told BBC Radio 4’s Today programme: “We’re trying to protect that staff number and it’s about choices in how we protect it.” 

“For us it means passing on some of those cost increases in terms of increased prices. It also means we’re probably going to have to divert investment that we would have made in growing our store base into protecting the stores that we have and the employees that we have.” 

He added that the decisions businesses were being forced to make seemed “entirely counter” to the government’s proclaimed growth agenda. 

On Tuesday, the beleaguered luxury handbag maker Mulberry said the UK market had been hit particularly badly from low consumer confidence, as it announced that it intended to cut jobs. 

The signatories to the BRC letter also include the B&Q owner Kingfisher and the supermarket chains Morrisons and Sainsbury’s. 

The BRC estimates that retailers will face a £2.3bn bill from April after the implementation of the increase in employer NICs from 13.8% to 15%, as well as the reduction in the earnings threshold that they must start paying it from £9,100 to £5,000. 

Retailers said these changes would be felt in particular by retailers because they employed “large numbers of people in entry-level and part-time roles”. 

In addition, retailers estimated that there would be a £2.73bn increase in wage costs from April, and about £2bn relating to an extension of producer responsibility for packaging from October. 

The letter calls for a discussion with the Treasury to address some of the companies’ concerns, and offered solutions including a phased introduction of the new lower earnings threshold on national insurance (NICs), and a delay on the start of the levy on packaging. 

Earlier this month, the bosses of more than 200 of the UK’s largest restaurant, pub and hotel businesses – including the Premier Inn owner Whitbread and Mitchells & Butlers – wrote a letter to the chancellor warning of closures and job cuts as a result of the rise in NICs. 

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While Rachel Reeves made no reference to train fares in her budget speech, the government said the rise would be “the lowest absolute increase in three years”…reports Asian Lite News

Rail fares will go up by 4.6% next March, the government disclosed alongside the budget – meaning they will rise above inflation for only the second time in 12 years. Meanwhile, the cost of most railcards will rise by £5, or almost 17%.

The increase has been set at 1% above retail prices index (RPI) inflation in July – which at 3.6% was substantially higher than the 2.2% consumer prices index (CPI) measure usually referred to by government.

While Rachel Reeves made no reference to train fares in her budget speech, the government said the rise would be “the lowest absolute increase in three years”.

However, fare rises in the past two years rose at rates considerably below RPI inflation. Since 2013, regulated fares – those set by government – have only increased above the rate of RPI inflation once, in 2021, when the industry had suffered a huge drop in passenger revenues during the pandemic.

Public subsidy to the railway rose by almost £10bn annually during the pandemic, when the government was forced to scrap franchising. Passenger revenues remain well below pre-pandemic levels, hurt by the trend of working from home. In subsequent train operating contracts the state has taken on liability for all revenue risks and firms receive a management fee.

In documents published alongside the budget, the Treasury said: “These policies will support the secretary of state for transport’s plans for reform, which will increase efficiency and reduce costs, while boosting ridership and revenue and improving performance, laying the groundwork for the transition to Great British Railways.”

The £5 increase in the price of most railcards will exclude the railcard for disabled passengers. The Treasury said railcards, which generally cost £30 a year, save users an average of “up to £158” annually.

The fare increase will apply in England from 2 March 2025. Almost half of rail fares in England are directly set by Westminster, with the devolved Scottish and Welsh governments usually capping fares at a similar level. Regulated fares include season tickets on most commuter journeys, off-peak returns on long-distance routes and flexible tickets for urban rail.

Campaigners and industry figures criticised the rise, which came as the chancellor followed Conservative chancellors in again freezing fuel duty on motorists.

Paul Tuohy from Campaign for Better Transport said: “Raising rail fares above inflation and hiking the cost of railcards is a kick in the teeth for people who rely on public transport, especially those on low income. Doing this at the same time as keeping fuel duty frozen sends entirely the wrong message. To tackle air pollution, congestion and climate change, we need to make public transport the attractive, affordable choice.”

Andy Bagnall, the chief executive of Rail Partners, representing private train operators, said: “Government should set fares at a level that will ultimately encourage more people to travel by train … The focus must be on growing passenger numbers, not making current passengers pay more.”

Rail passengers could be entitled to compensation after Northern was accused of breaking its fare evasion rules to prosecute commuters.

The train operator said on Monday all prosecutions of people accused of using a 16-25 railcard to obtain a discount at the wrong time of day were being withdrawn – with less than 25 previous cases being reviewed.

The company was criticised for prosecuting young people after they used their railcards in a way that would have saved a few pounds on morning journeys.

Under Northern rules, passengers with a railcard travelling on the wrong train must be offered the chance to pay back the deficit on the spot, the Telegraph reported.

A Northern spokesperson said: “We understand that fares and ticketing across the railway can, at times, be difficult to understand, and we are reviewing our processes for ensuring compliance with ticket and railcard terms and conditions. With regard to recent reported cases involving use of the 16-25 railcard with fares under £12 before 10am, we are withdrawing any live cases and will also look to review anyone who has been prosecuted previously on this specific issue.

“We are actively engaged with government and industry to simplify fares to help customers.”

Restrictions on a 16-25 railcard, which can also be bought by full-time students, mean discounts can only be applied to an “anytime” ticket before 10am if the fare is £12 or more, requiring cardholders to pay full fare for cheaper tickets.

However, there are exceptions to this rule: railcards can be used on early morning trains at a weekend, or during the months of July and August. Some rail users said the rules were confusing and they had fallen foul of the regulations after buying discounted tickets, unaware that their railcards were not valid.

Sam Williamson, 22, received a letter from Northern threatening him with prosecution over a £1.90 fare discrepancy after he mistakenly used his railcard on a morning train from Manchester to London on 5 September.

Last week, in a social media post seen by millions, Williamson told how he had received the notice from the government-owned operator. The engineering graduate from Glossop in Derbyshire said he was subsequently contacted by the train operator notifying him that it would “be taking no further steps” against him.

A Department for Transport spokesperson said: “We expect Northern and all operators to ensure their policy on ticketing is clear and fair for passengers at all times. Northern are reviewing the details of these cases and will report back to the department.

“It is clear that ticketing is far too complicated with a labyrinth of different fares and prices, which can be confusing for passengers. That’s why we have committed to the biggest overhaul of our railways in a generation, including simplifying fares to make travelling by train easier.”

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The revelation comes after a tricky period for cabinet relations during which multiple ministers went over the chancellor’s head to write directly to Prime Minister Keir Starmer to protest cuts to their areas….reports Asian Lite News

Chancellor Rachel Reeves said she’s reached agreement with all of her UK cabinet colleagues on their spending allocations for next week’s budget, following tensions with some senior ministers over cuts planned for their departments.

In a BBC interview, Reeves referred to a Treasury tradition whereby balloons representing each government department were inflated and stuck to the wall of the office of her deputy, Chief Secretary to the Treasury Darren Jones, ahead of budget talks, before being popped when settlements were reached. “All you need to know,” Reeves told BBC Radio 5 Live, “is there are no balloons left in the chief secretary’s office.”

The revelation comes after a tricky period for cabinet relations during which multiple ministers went over the chancellor’s head to write directly to Prime Minister Keir Starmer to protest cuts to their areas.

Angela Rayner, the deputy prime minister and housing secretary, did not reach agreement with the Treasury on spending for her department until late on Friday night, two days past the allotted deadline.

“I’m very sympathetic towards the mess that my colleagues have inherited”, Reeves said, referring to the £22 billion (S$37.7 billion) fiscal black hole she says the previous Conservative administration left behind. “But any additional money, in the end, it has to be paid for either by taking money from other departments or raising taxes.”

Addressing reports of cabinet dissent, Reeves said it was “perfectly reasonable that cabinet colleagues set out their case – both to me as chancellor and to the prime minister, about the scale of the challenges that they find in their departments.” She described the past week as “a really constructive process.”

As she prepares to deliver Labour’s first budget in 14 years, Reeves is planning a mix of tax rises and short-term spending restraint as part of a push to raise as much as £40 billion to plug the budgetary void and fund her party’s priorities – including the National Health service and longer-term infrastructure projects.

Reeves said she remained committed to election promises not to raise income tax, national insurance and value added tax for working people, but added “we do need to look at other taxes to make sure that the sums add up.”

“We do need to find additional money,” Reeves said. “There will be more difficult decisions to come on spending on welfare and taxation, and I’m not going to pretend otherwise.”

Reeves to announce major change to fiscal rules

Reeves will announce at the International Monetary Fund a plan to change Britain’s debt rules that will open the door for the government to spend up to £50bn extra on infrastructure projects.

After weeks of speculation, the chancellor will confirm at the fund’s annual meetings in Washington on Thursday that next week’s budget will include a new method for assessing the UK’s debt position – a move that will permit the Treasury to borrow more for long-term capital investment.

The change to the debt rule will be welcomed by the IMF, which says spending on UK infrastructure projects should be ringfenced as the government seeks to repair the damage to the public finances caused by the pandemic and the cost of living crisis.

Reeves will not specify while in Washington which of the various debt measures under consideration has been chosen, but the Guardian has been told by a senior government source that she will target public sector net financial liabilities (PSNFL).

This yardstick – which will replace public sector net debt – will take into account all the government’s financial assets and liabilities, including student loans and equity stakes in private companies, as well as funded pension schemes.

This would give the chancellor room to increase borrowing for investment in long-term infrastructure. Reeves said before leaving for the IMF on Wednesday: “A Britain built on the rock of economic stability is a Britain that is a strong and credible international partner.

“I’ll be in Washington to tell the world that our upcoming budget will be a reset for our economy as we invest in the foundations of future growth. It’s from this solid base that we will be able to best represent British interests and show leadership on the major issues like the conflicts in the Middle East and Ukraine.”

Labour inherited a set of fiscal rules from Reeves’s predecessor, Jeremy Hunt, dictating that day-to-day spending be met by revenues and that debt as a share of the economy must be falling in the fifth year of forecasts produced by the Office for Budget Responsibility.

Hunt was only narrowly on course to meet his debt rule, by £8.9bn, after announcing large tax cuts despite spending pressures linked to Britain’s high debt servicing costs, ballooning demand on public services and weak economic growth.

Had Hunt adopted a PSNFL target in March, it would have added about £53bn to his borrowing headroom.

The Treasury has hinted that it would not initially take advantage of all the extra scope that a change to the debt rule would provide and would put “guard rails” in place to ensure investment projects deliver value for money. Sources said energy and transport projects would be a particular focus of capital spending in the budget on 30 October.

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Reeves is now drawing up plans to find £40bn in order to avoid real-terms cuts to departments….reports Asian Lite News

Chancellor Rachel Reeves is looking to make tax rises and spending cuts to the value of £40bn in this month’s Budget, government sources have said.

At a political cabinet meeting, Reeves told ministers that filling the “£22bn black hole inheritance from the previous government” would only be enough “to keep public services standing still”.

Reeves is now drawing up plans to find £40bn in order to avoid real-terms cuts to departments, sources say, as first reported in the Financial Times and the Times.

Reeves warned ministers there would be “difficult decisions on spending, welfare, and tax” to come in her Budget this month.

The chancellor is finalising details of her first Budget, to be announced on Wednesday 30 October. She recently said there would be “no return to austerity” under this government and promised a boost to government investment, designed to kickstart growth.

The chancellor is setting herself a new borrowing rule which means all day-to-day spending should be funded from taxes raised, not from borrowing. It is this rule which is binding the government’s hands, and why they are seeking some welfare savings as well as a series of tax rises at the Budget.

A HM Treasury spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.” In an interview on Tuesday, the Prime Minister, Keir Starmer, did not rule out a National Insurance increase for employers in the Budget.

Treasury officials are reportedly exploring National Insurance on employer pension contributions to raise Budget revenue. Employers pay NI at a rate of 13.8% on all employees’ earnings above £175 per week, but pension contributions made by employers are currently exempt from the levy.

The prime minister side-stepped questions over whether Labour’s manifesto promise not to raise taxes for “working people” covered employers’ NI too. The Labour Party’s 2024 manifesto ruled out raising taxes for “working people”, such as National Insurance, income tax and VAT.

On Monday, Reeves said Labour’s election pledge not to increase NI on “working people” related to the employee element, as opposed to the sum paid by employers. Leading business groups in the UK raised concerns over the potential tax rise, warning that it would “hobble” economic growth and “hammer” the hospitality sector.

The £40bn figure is much higher than government has previously acknowledged, as ministers come to terms with the economic reality of delivering on their promise that there will be “no return to austerity”.

The prime minister has talked about how those with the “broadest shoulders” should bear the “heaviest burden”.

There are two weeks to go until we see what that means. There will no doubt be plenty more pitch-rolling in the days ahead.

Treasury sources said internal calculations showed that the huge in-year sum, which Reeves announced in July, was a conservative estimate of the amount of money needed to cover the cost of areas including public sector pay, support for Ukraine and the asylum system.

“Ministers do kind of know that we’ll need to fix the black hole every year, but because they see these things through the lens of their own departments, it feels they haven’t really clocked that the scale of the challenge at the budget is so much worse than we expected,” a source said.

UK urges China to exercise restraint  

The government called for China to exercise restraint on Monday after it held large-scale military exercises around Taiwan, Taiwan News reported.

China’s People’s Liberation Army (PLA) announced on Monday that it would hold the “Joint Sword-2024B” military exercises around Taiwan.

In response, the UK’s Foreign, Commonwealth and Development Office (FCDO) issued a statement seeking to de-escalate the situation after Beijing’s military actions, Taiwan News reported.

In the statement, the FCDO expressed its concern about the PLA drills around Taiwan and warned they “increase tensions and risk dangerous escalation in the Taiwan Strait.” The office reiterated the UK’s policy of supporting peace and stability in the Taiwan Strait, which it said is “of critical importance to global prosperity.”

The office called for the resolution of disputes between the two sides of the Taiwan Strait through dialogue, “without the threat or use of force or coercion.” The FCDO stressed the UK does not support unilateral attempts to alter the status quo in the strait.

“We are concerned by China’s military exercises around Taiwan, which increase tensions and risk dangerous escalation in the Taiwan Strait. The UK reaffirms our clear interest in peace and stability in the Taiwan Strait, which is of critical importance to global prosperity. We consider the Taiwan issue one to be settled by people on both sides of the Taiwan Strait through constructive dialogue, without the threat or use of force or coercion. We do not support any unilateral attempts to change the status quo,” the statement read.

The statement called for restraint in the area.

“We call for restraint and the avoidance of any further actions that may undermine peace and stability,” the statement said.

Taiwan’s Ministry of Foreign Affairs (MOFA) thanked the UK government for closely monitoring the situation in the Taiwan Strait and for “clearly stating the importance of peace and stability in the Taiwan Strait to the world.” The ministry said Taiwan is a responsible member of the international community and will continue to work with like-minded partners to “defend the rules-based international order.”

It also expressed hope that democratic countries around the world will “unite in calling on China to return to rationality and restraint, and stop threatening Taiwan and unilaterally escalating regional tensions,” as per Taiwan News. (ANI)

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The government has promised no return to “austerity” for public services and a boost to government investment, designed to kickstart growth…reports Asian Lite News

Chancellor Rachel Reeves will need to come up with billions of pounds more to meet the government’s pre-election promises, according to calculations by influential think tank the Institute for Fiscal Studies (IFS).

The government has promised no return to “austerity” for public services and a boost to government investment, designed to kickstart growth.

But to honour those commitments the chancellor will need to “grasp the nettle” and come up with £16bn more on top of £9bn tax rises set out in the Labour manifesto, the IFS said. The chancellor is finalising details of her first Budget, to be announced on 30 October.

Reeves will set out how she plans to meet a raft of manifesto promises against a tangle of self-imposed restrictions on borrowing, spending and debt. It will be the government’s first big set-piece, an opportunity to set out its priorities and values, and to reset the political tone after a backlash over clothing and hospitality donations.

There is an expectation that more of the tax burden will fall on higher earners, following the government’s surprise decision to limit winter fuel payments to the poorest pensioners. Some also hope for an end to the two-child limit for benefit payments. But Reeves’ first Budget comes against a backdrop of higher debt following the pandemic, higher interest payments to finance that debt and inflation that has only recently returned to normal levels. A growing and ageing population and the climate transition impose additional challenges.

The new government had inherited an “unenviable” situation with the public finances, the IFS said in its regular pre-Budget analysis of the public finances. Growing pressures on health and pensions, combined with falling revenues from fuel and tobacco duties made the situation harder, but tough decisions were necessary, IFS director Paul Johnson said.

“If Reeves does not grasp the nettle on 30 October, it could come back to sting her again before the next election,” Johnson said. There has been much debate over what taxes might be increased to cover the gap.

At the election Labour promised not to increase taxes on “working people”, and said it would not raise VAT (value added tax), income tax or National Insurance.

However, on Wednesday, Prime Minister Keir Starmer did not rule out a possible increase in National Insurance contributions paid by employers, raising speculation this could be a Budget measure.

The IFS, working with economists at investment bank Citi, calculated how much extra revenue the chancellor would need to find to avoid sharp cuts in public services. That is based on her pledge to ensure day-to-day spending is paid for with tax revenues.

Economic forecasting is not precise; stronger than expected growth could give the government greater room for manoeuvre, while weaker growth might mean cuts were still required.

The IFS said on their own the £9bn tax rises already planned by the chancellor, might be enough to maintain spending at current levels, including taking inflation into account, although the forecast was so tight it was “on a knife edge”.

However, many public services including prisons, higher education and local government are struggling to meet current needs. Pressures are expected to grow, especially in social care and the NHS and the government has pledged additional healthcare staff and other reforms.

To meet that growing need without public services deteriorating and to fulfil manifesto promises, the IFS said real-term spending would need to rise in line with the size of the economy, or around 2.8%, requiring the extra £16bn in funding.

Spending increases that simply keep pace with inflation, or even ones that keep steady as a proportion of the size of the economy, would not be enough to transform public services, the IFS warned.

Even the larger increase remains much less generous than the 3.3% increase Rishi Sunak pledged in 2021. When Boris Johnson announced an “end to austerity” in 2020 he pledged a 4.1% increase in average year-on-year spending, the IFS said.

The new government has also pledged to boost investment. However, the chancellor has indicated she is likely to treat spending for investment as separate from day-to-day spending, and consider borrowing more to fund it.

She is also widely expected to change the way the UK’s debt burden is measured and as a result what constraints are made on government borrowing. Before the election Labour said it would stick to Conservative pledges to have debt falling as a proportion of economic output by the fifth year of the forecast.

The IFS said increased investment was an important component in addressing the UK’s low growth, but said “significant extra borrowing to fund that investment would be risky”.

The UK had elevated debt levels, substantial borrowing and a current account deficit, meaning it imports more than it exports, which left it more vulnerable than the euro area or the US over borrowing pressures.

“Some additional investment may therefore need to be financed through higher taxes,” the IFS said. The government has said it will publish a 10-year infrastructure strategy next spring, which will include housing and schools as key economic infrastructure.

The strategy will be overseen by a new body, which it said would “get a grip on the delays to infrastructure delivery that have plagued our global reputation with investors”.

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