The FTSE 100 slumped to its lowest level in almost three months this morning, with traders apparently rattled by Rachel Reeves’ tax and spend Budget yesterday.
The Chancellor’s package of financial measures included far-reaching changes impacting Stamp Duty, Capital Gains Tax National Insurance Contributions (NIC) for employers and Inheritance Tax, among other key areas.
Ms Reeves has attempted to justify her approach by saying drastic measures were necessary to plug a £22billion financial black hole she claims she was left by the Tories.
However, the FTSE, THE United Kingdom’s best-known stock market index, appears to be unconvinced, and after an immediate dip yesterday, it fell by 52.9 points shortly after trading got underway this morning, at one point dropping to 8.106.73 – the lowest it has been since August 8.
Speaking to the BBC this morning, Ms Reeves admitted: “This is not the sort of Budget we would want to repeat.”
“But this is the Budget that is needed to wipe the slate clean and to put our public finances on a firm trajectory.”
Paul Johnson, director of the IFS, fears she may need to raise taxes again in a few years if extra borrowing in the Budget does not lead to increased growth.
He added: “The first gamble is that a big cash injection for public services over the next two years will be enough to turn performance around, and that many of the temporary spending pressures won’t persist.
“If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.”
Higher rates on employers’ national insurance contributions (NICs) and a lower starting threshold will raise £25.7 billion by 2029-30.
The rate will increase by 1.2 percentage points to 15% from April 2025, with payments starting when an employee earns £5,000, down from the current £9,100.
The Office for Business Responsibility forecasts that by 2026-27 some 76% of the total cost is passed on through lower real wages – a combination of pay cuts and increased prices.
The measure could also lead to the equivalent of around 50,000 average-hour jobs being lost, the watchdog said.
