Reform UK's economic plans ‘would trigger run on the pound'
Britain faces an 'immediate and violent' sterling crisis if Nigel Farage takes power and follows through on plans to slash taxes, economists have warned.
Proposals by Reform UK to take millions of workers out of income tax, cut corporation tax and reduce NHS waiting lists to zero would trigger a run on the pound, according to Simon French, at Panmure Liberum.
Mr French said enacting Reform's manifesto pledges would blow an £80bn hole in the public finances in a move that would see borrowing costs for households, businesses and the country suddenly lurch upwards.
Richard Tice, the deputy leader of Reform, dismissed the analysis as 'juvenile claptrap'.
He said the findings did not account for the savings a Reform government would make by slashing the size of the state, cancelling net zero levies and charging employers higher National Insurance for employing foreign workers.
Panmure said this made bringing immigration down crucial for a Labour Government that is in danger of losing votes to Reform.Recent polling suggesting that the party is in pole position to win the next election.
Mr French said Sir Keir Starmer's crackdown on immigration had 'reduced the chance of Reform introducing their economic agenda at the 2029 general election.
He said: 'Those plans that we think would create an immediate fiscal gap of £70bn-£80bn per year – would in our view create the high probability of an immediate and violent sterling crisis.'
He warned that the crisis sparked by Liz Truss's mini-Budget would pale in comparison to the likely reaction to Reform's economic agenda, which has vowed to increase the personal allowance to £20,000 in a move that would cost at least £60bn and freeze all non-essential immigration.
'Experimentation with an immediately higher fiscal deficit profile – of an additive scale set to be two-to-three times larger than anything attempted by the 2022 mini-Budget or 2024 October Budget – would create sharp rises in UK sovereign, commercialand household interest rates in our view,' he said.
The pound fell to a record low of $1.03 against the dollar at the height of the mini budget crisis that threatened pension funds as they struggled to meet cash calls. It is currently trading above $1.32.
Mr Tice accused Panmure of failing to 'look at the savings that we'll make' as part of his analysis, as well as their commitment to fiscal responsibility.
He added: 'Of course, what we would do is we would make the savings first with a direction of travel to significant tax cuts, right? We're not going to do the tax cuts before the savings, which is why what he suggested is juvenile claptrap.'
Sir Keir Starmer warned on Monday the UK risked becoming 'an island of strangers' without stricter border controls as the Prime Minister unveiled plans to ban overseas care workers, tighten access to skilled worker visas and raise the costs to companies of employing foreign workers.
Mr French highlighted that both the Treasury and Office for Budget Responsibility (OBR), the Government's tax and spending watchdog, would likely say the policy reduces growth as well as Rachel Reeves's headroom to meet debt targets.
He suggested that the Immigration White Paper served as a partial rebuke of these assumptions, 'quoting that migration analysis is highly sensitive to alternative assumptions'.
Mr French added: 'Such a Trumpian nod to 'alternative facts' must be another subtle effort at flattery through imitation. But bad political humour aside this does perhaps illustrate a weakening, at least for now, on the primacy of the Treasury view in this policy area.
'It will however have been made in full knowledge within the Treasury that the autumn Budget will put into conflict the OBR's estimate for fiscal headroom and any revised estimate for net migration stemming from the White Paper proposals. An already tricky fiscal event looks to have got trickier still.'
Economists have been critical of Reform's tax and spending plans. Analysis by the Institute for Fiscal Studies last year warned that huge spending increases for the NHS 'would not be nearly enough to meet Reform's incredibly ambitious commitment to eliminate waiting lists within two years'.
The IFS highlighted that eliminating the waiting list entirely was 'a feat that has not been achieved in the history of the NHS'.
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