Rachel Reeves on course for £24bn tax raid, warns JP Morgan
Rachel Reeves is on course to raise taxes by £24bn this autumn as she launches a fresh raid on working people to fund higher welfare spending.
JP Morgan said the Chancellor was quickly becoming boxed in by pledges from Sir Keir Starmer, including proposals to reverse cuts to winter fuel payments for pensioners as well as the suggestion that he will remove a cap on benefits for families with more than two children.
The moves have widely been seen as a bid to ward off the threat from Nigel Farage's Reform UK, which made significant gains in the recent local elections.
However, Allan Monks at JP Morgan said the strategy would force Ms Reeves to increase taxes again, just a year after her record £40bn raid.
Sir Keir's pledge to look again at eligibility for winter fuel payments and the benefit cap could cost up to £5bn a year by the end of the decade, JP Morgan said.
Mr Monks said the Ms Reeves was also under pressure as a result of Donald Trump's trade war, which has taken a toll on the economy. An expected £2.4bn boost to growth from trade deals with the EU, US and India will fail to offset a £7.3bn hit from higher tariffs.
JP Morgan believes the US president will be able to keep his 'liberation day' tariffs in place, despite a US court ruling they were illegal. He was granted a legal stay by an appeals court on Thursday.
The investment bank said: 'There is continued uncertainty about the tariff regime in light of this week's US court ruling, but for now we assume the universal 10pc baseline will stay.'
Weaker growth is set to blow a further £9bn hole in the public finances, leaving Ms Reeves on course to have to raise taxes by a total of £24.5bn to restore a £9.9bn buffer she currently has to balance the books, Mr Monks said.The economist predict that Ms Reeves would extend a freeze on income tax thresholds until the end of the decade in a move that could raise just shy of £10bn.
Thresholds have already been frozen until 2028, a policy that will drag 4m people into paying higher rates of income tax between now and then. It means the number of workers paying tax on their incomes is on course to climb above 40m for the first time, with 9.2m paying the higher or top rate.
Frozen thresholds are not likely to be sufficient and JP Morgan believes the Government may be forced to impose a gambling tax and a further squeeze on welfare to balance the books.
Ms Reeves's options are limited by Labour's manifesto pledge not to raise taxes on working people, including income tax, National Insurance and VAT. However, the Government has already found loopholes in its pledge after raising National Insurance on employers by £25bn last October.
Further pressure to spend more may yet build between now and the Budget. Ms Reeves is already facing a rebellion over £5bn of welfare cuts as she tries to stop the sickness and disability benefits bill from rising above £100bn by the end of the decade.
Sanjay Raja at Deutsche Bank also warned that higher taxes in the autumn were now 'a near certainty'.
He said Ms Reeves would face further pressure ahead of the spending review on June 11 where she will set out detailed plans for Whitehall expenditure over the next three years.
'Undeniably, the Spending Review will likely leave the Chancellor with a tricky autumn Budget to navigate,' said Mr Raja.
'Tax rises look a near certainty. And pressure to reform the Chancellor's [borrowing rules] will only increase from here on out.'
Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
an hour ago
- Yahoo
Is the Housing Bubble Finally Losing Pressure?
The past few years have been a whirlwind for homebuyers, from a pandemic-driven housing boom to inflation-induced interest rate hikes that made borrowing increasingly expensive. As it stands today, many people looking for an abode are getting clobbered by a one-two punch: arm-and-a-leg home prices and stubbornly elevated mortgage rates. That means, for many Americans, going to open houses is basically worth it only for the complimentary canapés, a consolation snack while they restrain their homeownership ambitions until better market conditions arise (fingers crossed). The spring season, typically the housing market's busiest, hasn't provided much cause for optimism: Existing home sales fell 0.5% in April from March, according to the National Association of Realtors. Home sales for each month fell to their weakest since 2009, when the Great Recession was in full swing following the subprime mortgage crisis. In February, JPMorgan analysts were muted about the US housing market's prospects, writing it was 'likely to remain largely frozen through 2025.' But a notable new report last week from Redfin argued that some air may be let out of the bubble soon, much to the advantage of prospective buyers. The big reason, according to the brokerage's analysis: Sellers now outnumber buyers by nearly half a million, the biggest gap on record since 2013. So, could the most favorable ratio for buyers in over a decade give them enough leverage to close deals and even bring prices down? Let's take a look (and, if not, there'll always be the canapés). READ ALSO: Shrinking GDP Shows Tariffs' Impact as Courts Scrutinize Their Legality and E.l.f. Soars After $1 Billion Pow(d)er Move to buy Hailey Bieber's Rhode First, a quick catchup on the forces that brought us to this place. During the pandemic, housing demand went through the roof. As Federal Reserve Bank of San Francisco researchers explained, that was thanks mainly to the massive shift to remote work, a 'key factor explaining why U.S. house prices grew 24% between November 2019 and November 2021.' San Francisco Bay-area tech workers could suddenly take their high incomes and buy homes in cheaper (for them; sorry, locals) Austin, Texas, or Denver, Colorado. Wall Street professionals could do the same in Miami or Tampa Bay, Florida. By 2022, Federal Reserve Board economists estimated that 'new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand.' Instead, the mushrooming demand prompted the housing market to overheat. In November 2021, for example, there were 2.3 million prospective homebuyers versus 1.4 million sellers, giving the latter a significant market advantage. In April, five years after pandemic lockdowns, the median US existing home price hit $414,000, a new peak for that month, according to the National Association of Realtors, which noted home prices have risen on a year-over-year basis for 22 straight months. In addition to increasingly expensive homes, another challenge for buyers emerged in 2022, when the Federal Reserve began hiking interest rates to curb the highest inflation surge in decades. That was back when we were fretting about supply-chain snarls caused by the pandemic (now we fret about supply-chain snarls due to tariff wars). Mortgage rates, which tend to track interest rates, had been incredibly favorable when the Fed cut interest rates to record lows to stimulate the economy at the onset of the pandemic. They spiked after the Fed kicked off a series of rate hikes in early 2022, however. These factors helped bring the pandemic housing boom to a halt: Those 2.3 million buyers in November 2021 declined all the way to 1.5 million by November 2022. Now, the number of sellers far outstrips the number of buyers. Redfin's new analysis found that there are an estimated 490,041 more home-sellers in the US than prospective buyers, a sharp reversal from the pandemic housing boom. 'The balance of power in the US housing market has shifted toward buyers, but a lot of sellers have yet to see or accept the writing on the wall,' Asad Khan, the brokerage's chief economist, says in the report. 'Many are still holding out hope that their home is the exception and will fetch top dollar. But as sellers see their homes sit longer on the market and notice fewer buyers coming through on tour, more of them will realize that the market has adjusted and reset their expectations accordingly.' Fretting about tariffs has helped suppress the number of Americans shopping for a home, with a survey finding just under a quarter of them canceled plans to make major purchases because of Washington's trade-warring and another third delayed plans. That means less competition for the buyers in the field. Meanwhile, Redfin predicts that home prices will fall 1% year over year by the end of 2025, with the glut of sellers forming the bedrock of its reasoning. Unsurprisingly, many of the markets where the balance of power has shifted the most for homebuyers, according to the report, are the same places where the pandemic housing boom occurred. Of the 50 most populous metro areas in the US, the top buyer's market is now Miami, according to Redfin. Where it once was flooded with homebuyers attracted to the idea of warm weather and beaches enhancing a work-from-home lifestyle, it now has roughly 21,000 sellers compared with just 7,000 buyers, or a 197% difference. Another notable metro area is Austin, which drew an influx of tech workers during the pandemic. It has a 124% ratio of sellers to buyers and even saw its median home sale price fall 3% year-over-year in April. Jacksonville and Tampa, both in Florida, as well as Phoenix, Arizona, also experienced year-over-year declines in median home sale prices. 'It's not uncommon for a buyer to get a home for 5% less than the list price and $10,000 in seller concessions,' one Daytona Beach, Florida-based Redfin realtor noted in the firm's report. Highly Rated. Even if the balance of power has shifted, one factor dogging buyers remains stubbornly unfazed: mortgage rates. Forecasts had initially predicted they would fall this year, based on expectations that the Federal Reserve would cut the benchmark interest rates undergirding a wide swath of lending costs as inflation softened. That hope has been repeatedly dashed due to the economic uncertainty accompanying the Trump administration's shifting economic policies. Until the Fed is certain conditions warrant a rate cut, higher interest rates will continue propping up mortgage costs. Another benchmark for mortgage rates, Treasury yields, has simultaneously been driven up because the US credit rating was downgraded over concerns about the country's swelling budget deficit. The 30-year fixed mortgage rate as of May 29 was 6.89%, according to the Federal Reserve Bank of St. Louis. Since 2023, mortgage rates have hovered well above 6%, often closer to 7%, at roughly the highest levels in two decades. Redfin expects them to stay there through the rest of the year, predicting mortgage rates will float around 6.8%. So, while lower housing prices have arrived in some markets and may be on the way in others where buying power has shifted, mortgage rates are likely to remain a relative thorn in the side of buyers due to economic factors far beyond their control. If tariffs are levied on imported goods at the scale the Trump administration has threatened, that may spur more inflation and make it even harder for the Fed to cut rates. Unfortunately, while real estate agents might be able to get you 5% off the list price for your dream house, they can't negotiate away the nascent global trade war and Congress' bipartisan habit of spending beyond its means. This post first appeared on The Daily Upside. To receive delivering razor sharp analysis and perspective on all things finance, economics, and markets, subscribe to our free The Daily Upside newsletter.
Epoch Times
an hour ago
- Epoch Times
Poland Votes for New President in Pivotal Runoff Election
Citizens of Poland headed to the polls on June 1 for a presidential runoff election that could determine the nation's political path forward and future relationship with the European Union. Liberal pro-EU candidate and Warsaw Mayor Rafał Trzaskowski is facing off against Karol Nawrocki, a conservative historian of the right-wing Law and Justice Party.
Business of Fashion
an hour ago
- Business of Fashion
This Week: Reviving the Sustainable Fashion Movement in Copenhagen
What's Happening: On June 3 in Copenhagen, the Global Fashion Summit kicks off three days of speeches and debate on mitigating fashion's impact on people and the planet. On the Defensive: This year's theme is 'Barriers and Bridges,' an acknowledgment that environmental and human rights efforts are on the back foot right now (past themes tended to take an 'onward and upward' tack; last year's was 'Unlocking the Next Level'). The second Trump administration has been a disaster for sustainability advocates, targeting environmental regulations, renewable energy and ESG investing. Aid cuts have kneecapped on-the-ground nonprofit work that both supported fashion's climate and labour initiatives and created a degree of accountability. Tariffs also are expected to squeeze both brands and manufacturers, diminishing funds for worthy environmental and social projects. Careful What You Say: In Copenhagen, relatively few representatives of big brands will take the stage, part of a wider pattern where the industry is choosing not to speak up for fear of becoming Trump's next target, even for causes they continue to support financially. ADVERTISEMENT One speaker to watch is Jessika Roswall, an EU commissioner whose purview includes circularity, who will address 'advancing the European Green Deal while simultaneously strengthening the EU economy.' Earlier this year, that framing led the EU to push to water down regulations that would impose strict reporting and monitoring requirements on fashion supply chains. But even in their current state, the rules are among the most aggressive attempts by a major economy to address fashion's toll on the planet. Bangladeshi labour rights advocate Kalpona Akter will also be headlining. Akter has been pushing the industry to change for decades, but she's speaking at a particularly precarious moment, with economic and political instability threatening the fragile gains that have been made. High-profile scandals, like the ongoing ruckus over luxury brand's links to sweatshops in Italy, highlight just have far the industry still has to go. Laying Low: The sustainable fashion movement is licking its wounds after a decade of big promises and underwhelming followthrough from the industry and governments. To re-secure buy-in from big brands and politicians, advocates need to win the argument that there is a business case for sustainability. The industry must also find a message that resonates with consumers who have learned to tune out talk of emissions and waste. Perhaps the 16th Copenhagen Fashion Summit will be where this new narrative begins to emerge. The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to
