Key events
UK borrowing costs drop as Reeves speaks
The cost of UK borrowing is falling as Rachel Reeves outlines her priorities for this month’s budget.
The chancelllor’s promise that she has an ‘iron clad’ commitment to her fiscal rules is probably reassuring bond investors.
The yield, or interest rate, in UK 10-year bonds has dropped by 4.5 basis points (0.045 percentage points) to 4.39% this morning.
The yield on 30-year bonds has dropped by 5 basis points, to 5.166%.
Those are relatively small moves, but certainly moving the way the Treasury would like to see.
Reeves promises ‘iron clad’ commitment to fiscal rules
Rachel Reeves then insists that her commitment to her fiscal rules is “iron clad” – a signal to the financial markets that she will not sign off a debt splurge in this month’s Budget.
She explains that £1 in every £10 of government spending goes on servicing the national debt.
And she argues against calls for more borrowing, pointing out that there is a limit that banks and pension funds will pay for UK debt.
She says:
“The more we try to sell, the more it will cost us.”
Reeves also pledges not to repeat the mistakes of the “cycle of austerity and decline” which has led the UK to its current situation.
Although interest rates have been cut five times this parliament (from 5.25% to 4%) they are still a constraint on the economy, Reeves says.
[The Bank of England is due to set rates again on Thursday].
In another criticism of previous governments, Rachel Reeves warns that years after austerity has led to capital investment being sacrificed.
Reeves then warns that it is clear that the UK’s productivity performance is weaker than previously thought.
She says she won’t preempt the conclusions of the Office for Budget Responsibility’s assessment of UK productivity (reminder, there is speculation the OBR could lower its estimate of trend productivity growth by 0.3%).
Reeves: World has thrown more challenges our way
Chancellor Rachel Reeves warns that years of “economic mismanagement” has limited the UK’s potential, leaaving to unrealised potential.
She adds that the world has thrown “more challenges our way” since her first budget a year ago.
She cites three factors:
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tariffs which have dragged on global confidence, dampening growth
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inflation has been too slow to come down, with supply chains remaining volatile
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the cost of government borrowing has increased around the world – something the UK has been particularly vulnerable to
Rachel Reeves begins her speech by saying she will make the choices necessary to deliver strong foundations for this economy.
She says her budget later this month will focus on protecting the NHS, reducing the national debt and improving the cost of living.
Watch Rachel Reeves’s speech here:
Rachel Reeves has just arrived to give her much-anticipated speech – you can watch it live here:
Stocks have dropped at the start of trading in London, although Rachel Reeves isn’t to blame.
The FTSE 100 index of blue-chip shares has dropped by 70 points, or almost 0.75%, to 9628 points.
It’s part of a wider sell-off in global financial markets, in what looks like a risk-off mood among investors.
Mining companies are leading the fallers in London, with copper producer Antofagasta down 3.3%.
Reeves: Today I will set out the choices our country faces
Rachel Reeves has just posted on X that she will “set out the choices” the UK faces.
The chancellor wrote:
The Budget this month will focus squarely on the priorities of the British people: cutting waiting lists, cutting the national debt and cutting the cost of living. Today I will set out the choices our country faces and the values that will guide my decisions.
UK Politics Live: Reeves to roll pitch for budget tax rises
There’s obviously huge interest in Westminster, as well as in the financial markets, in Rachel Reeves’s speech – due to start at 8.10am GMT.
My colleague Andrew Sparrow will be tracking events here.
He writes:
David Cameron is credited with popularising the term “pitch rolling” in Westminster, to describe the process whereby politicians prepare the public for difficult announcements by shaping the argument in advance. It is a metaphor with connotations of a gentle game of cricket, and pleasant summer afternoons.
Today Rachel Reeves is engaged in a classic piece of “pitch rolling”. But her task is more daunting. She won’t be flattening the odd bump; she has to shift some colossal PR obstacles, which is more a task for a fleet of JCB diggers.
That is because, when she delivers the budget three weeks tomorrow, she will have to fill fiscal gap reportedly as high as £30bn. That means tax rises, which are never an easy sell. But it also means going back on the promise she made to the CBI last year when she said she would not need to raise taxes again on the scale she did in autumn 2024. And there seems to be a very real chance that she will also decide to raise income tax, which would be a direct breach of a promise Labour made in its election manifesto.
Goldman Sachs also expect tax rises
Analysts at Goldman Sachs have predicted that Rachel Reeves’s budget could push down government borrowing costs, if she reassures the bond markets that she’s committed to tackling the deficit.
In a research note released to clients last Friday, Goldman Sachs predict that the chancellor’s budget measures – and pre-budget hints about what’s to come – could knock up to 0.2 percentage points off the cost of borrowing (the ‘yield’ on a 10-year bond) for a decade.
They explain:
Given the modest downside impact on growth and inflation, plus the potential for increased credibility in the deficit path, we expect the budget measures to lower 10y Gilt yields by around 10-20bp, although given budget expectations are already forming we see this as a tailwind for Gilts into the budget more than the on-the-day reaction.
Goldman Sachs also point out that UK bond yields remain the highest in the G10.
They also expect tax rises in the budget, saying:
The upcoming budget is set to tighten fiscal policy by around £30bn, which our economists expect will mainly comprise tax increases, including freezing income tax thresholds from 2028, broadening the NI [national insurance] tax base, pensions and property taxes.
We expect limited spending cuts, but that the budget delivers a modest increase in headroom at the end of the forecast horizon.
Tax rises at Budget ‘inevitable’, thinktank warns
This month’s UK budget will include significant spending cuts and tax rises to tackle “a significant deterioration in the public finances”, thinktank the Resolution Foundation has predicted.
In a new report issued this morning, the Resolution Foundation predicts that Rachel Reeves’s fiscal headroom (the £10bn margin to keep within her fiscal rules) will have been more than wiped out by changes in the economic outlook, and government u-turns since March.
That will create “a bleak picture for the public finances”, they say, as the independent Office for Budget Responsibility is expected to downgrade the UK’s ‘trend’ productivity growth by 0.3 percentage points, creating a £20bn shortfall.
That downgrade will be partially cushioned by other changes, including stronger than forecast wage growth.
The think tank says:
The upcoming Budget is a make-or-break moment for the Government. It seems clear that this month’s fiscal event will include significant spending cuts and tax rises spurred by a significant deterioration in the public finances.
The Resolution Foundation urge Reeves to take steps to increase her headroom, to as much as £20bn, to send a clear message to markets that she is serious about fixing the public finances.
They have calculated that doubling the fiscal headroom to £20bn and allowing for cost of living support would require £31bn of fiscal consolidation. And with limited scope for spending cuts, tax rises of £26bn are therefore likely to be needed.
Avoiding touching the three big taxes – VAT, Income Tax and National Insurance (NI) – “risks doing more harm than good”, they argue (even though Labour promised in their manifesto not to raise them).
Resolution also argue that the chancellor could offset a 2p rise in Income Tax with a 2p cut in employee National Insurance, raising £6bn while protecting workers from these tax rises.
Their report concludes:
So, although tax rises are inevitable, there is a way to do them which comes with a boost confidence in the economy and the public finances, while also reducing child poverty and the cost of living.
James Smith, research director at the Resolution Foundation, said:
“The Chancellor should look to make sensible tax reforms to car taxes, dividends and capital gains. Switching 2p of employee National Insurance onto Income Tax would raise £6 billion while protecting workers’ wages
Introduction: Reeves to lay groundwork for budget tax rises
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
With just over three weeks until the UK budget, speculation is mounting that Rachel Reeves will rip up the government’s manifesto promises and raise income taxes.
The chancellor will deliver a speech this morning which is widely expected to pave the way for a tax-raising budget on 26 November.
Downing Street says Reeves will lay out the economic choices she will take at the Budget later this month to cut hospital waiting lists, cut the national debt and cut the cost of living.
The Chancellor is expected to say she will take the necessary choices to deliver “strong foundations”, and explain:
“It will be a budget led by this government’s values, of fairness and opportunity and focused squarely on the priorities of the British people:
“Protecting our NHS, reducing our national debt and improving the cost of living.
Reeves faces a choice between tax rises, spending cuts, or breaking her fiscal rules through higher borrowing because of a black hole in the budget – partly caused by a productivity downgrade would leave her with a £20bn gap to fill.
Last night, Keir Starmer told MPs the government would take “tough but fair decisions”, promising a “Labour budget built on Labour values” that would protect the NHS, reduce debt and ease the cost of living.
Mujtaba Rahman, managing director for Europe at consultancy Eurasia Group, says Reeves faces “an agonising choice” on whether to prioritise politics or economics.
He told clients:
The economics increasingly points to what Whitehall insiders are calling a “go big” strategy: another large tax hike, including on income tax, to close a gap of about £30bn to meet Reeves’s goal of balancing government spending and revenue by 2029-2030; however, abandoning the Labour manifesto promise not to raise income tax would leave the party wide open to Tory and Reform attacks.
Yesterday, Reform UK leader Nigel Farage rowed back on his party’s previous promise to deliver tax cuts, arguing it wasn’t realistic in the current economic climate.
The agenda
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8.10am GMT: Chancellor Rachel Reeves to deliver speech in Downing Street
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10am GMT: House of Lords committee inquiry on regulators and economic growth
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10am GMT: FCA CEO Nikhil Rathi speech at Fair4All Finance event on ‘delivering financial inclusion together”
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2:15pm GMT: Treasury Committee hearing on AI in financial services with new City minister Lucy Rigby
