Latest news with #EYItemClub
Times
08-05-2025
- Business
- Times
Donald Trump's tariffs are set to drive down UK economic growth
Disruption to global trade and market uncertainty from President Trump's tariff wars will drive down UK economic growth this year and next, according to new forecasts. The economy is predicted to grow 0.8 per cent this year, down from the 1 per cent forecast in February, before Trump unveiled sweeping tariffs, and the outlook for 2026 has also been cut to 0.9 per cent from 1.6 per cent by EY Item Club, a forecaster. Businesses and consumers are expected to become more cautious, and reduce their spending, during the second and third quarters of this year, after Trump imposed tariffs of 10 per cent on all British exports to the United States and 25 per cent on steel, aluminium and cars. The forecasts are weaker
Telegraph
29-04-2025
- Business
- Telegraph
How Rachel Reeves could launch a tax grab on workers
The Chancellor could be about to break Labour's promise not to increase taxes for 'working people'. Rachel Reeves has repeatedly vowed not to raise key taxes such as income tax, corporation tax or VAT. But she may have to disregard Labour's manifesto pledge if low economic growth forces her to put up taxes in the autumn Budget. In a worst-case scenario she could become the first Chancellor in 50 years to increase income tax rates, economists have warned. It comes after Labour policies triggered a fall in capital gains tax receipts and an exodus of the wealthy. Economic forecasting group, the EY Item Club, has warned the country may require a 'fiscal policy rethink' after it downgraded growth expectations for 2025 and 2026. US President Donald Trump's tariffs are also expected to damage UK growth by raising prices and reducing export demand. Tim Stovold, of accountancy firm Moore Kingston Smith, said the manifesto commitment not to increase the rates of income tax, National Insurance (NI) and VAT had 'deprived the Chancellor of the levers that could normally be pulled to collect more tax'. He said: 'But this commitment was made before the recent fears of a global economic slowdown because of US policies. If there was ever a time to revisit this commitment in the light of today's economic headwinds, it is now.' Here Telegraph Money outlines the different ways the Chancellor could raise tax on income in this year's Budget. Extending the freeze on thresholds Since Rishi Sunak froze income tax thresholds in 2021, government revenue from the levy has soared 36pc to hit £301bn a year. The latest forecasts suggest eight million workers will be pulled into higher rates of tax by 2028, raising an extra £38bn per year for the Treasury.
Yahoo
29-04-2025
- Business
- Yahoo
How Rachel Reeves could tax you to pay for Labour's wealth exodus
The Chancellor could be about to break Labour's promise not to increase taxes for 'working people'. Rachel Reeves has repeatedly vowed not to raise key taxes such as income tax, corporation tax or VAT. But she may have to disregard Labour's manifesto pledge if low economic growth wipes out forces her to put up taxes in the Autumn Budget. In a worst-case scenario she could become the first Chancellor in 50 years to increase income tax rates, economists have warned. It comes after Labour policies have triggered a fall in capital gains tax receipts and an exodus of the wealthy. Economic forecasting group, the EY Item Club, has warned the country may require a 'fiscal policy rethink' after it downgraded growth expectations for 2025 and 2026. The Donald Trump's tariffs are also expected to damage UK growth by raising prices and reducing export demand. Tim Stovold, of accountancy firm Moore Kingston Smith, said the manifesto commitment not to increase the rates of income tax, National Insurance (NI) and VAT had 'deprived the Chancellor of the levers that could normally be pulled to collect more tax'. He said: 'But this commitment was made before the recent fears of a global economic slowdown because of US policies. If there was ever a time to revisit this commitment in the light of today's economic headwinds, it is now.' Here Telegraph Money outlines the different ways the Chancellor could raise tax on income in October's Budget. Since Rishi Sunak froze income tax thresholds in 2021, government revenue from the levy has soared 36pc to hit £301bn a year. The latest forecasts suggest eight million workers will be pulled into higher rates of tax by 2028, raising an extra £38bn per year for the Treasury. In the Autumn Budget last year Reeves vowed to bring an end to the stealth tax raid, adding personal tax thresholds will be uprated in-line with inflation once again. She said at the time: 'I am keeping every single promise on tax that I made in our manifesto.' But it is now thought she may decide to row back on these plans because of low growth, high borrowing costs and the threat of trade war. Sean McCann, of financial advice firm NFU Mutual, said: 'Extending the freeze on income tax thresholds and allowances has been the favoured method of increasing tax take without raising rates. As incomes increase, more people are dragged into higher tax bands. 'Current thresholds are set to remain frozen until 2028. It's likely we'll see this date extended to at least 2030 to ease the pressure on government finances.' Raising income tax rates would be a simple yet unpopular way to boost the Treasury's coffers. Earlier this month the director of the Institute for Fiscal Studies (IFS) urged the Chancellor to consider increasing the basic rate of income tax – currently 20pc – on the grounds that 'drastic action' was required following the US president's tariff bombshell. A one percentage point increase in the basic rate would raise £8bn, while a two percentage point increase would generate more than £16bn, according to calculations by accountancy firm Blick Rothenberg. However, it would deliver a significant blow to workers' pay packets. A worker on £30,000 would be £175 worse off if the rate increased to 21pc and £349 if it rose to 22pc. Meanwhile, a worker earning £50,000 would see their annual pay drop by £375 or £749 respectively Another option would be to increase employees' National Insurance contribution (NIC) rates. The Government recently raised employers' NI payments, effectively making it more expensive to hire workers. But it could go a step further by increasing employee NICs as well – thereby undoing some of the tax cuts made under the previous Tory government. Increasing the main rate for those earning over £12,570 from 8pc to 9pc would generate about £5bn a year, according to the government's own estimates. However Mr Stovold said the Chancellor was more likely to go after higher earners given the far-reaching consequences of her employers' NI raid. 'The changes to the employer's National Insurance rates and threshold that applied from this April are widely thought to result in lower earners suffering pay freezes or below inflation pay rises. 'Therefore, the Chancellor is very likely to target higher earners, as further measures directed at lower earners would be seen as a hammer blow to those who can least afford it.' However, increasing the additional rate of income tax by one percentage point would raise a mere £135m a year because of the small pool of taxpayers in this 45pc bracket. By comparison, raising the additional rate of employee NI would raise £1.85bn. The 2pc rate currently applies to earnings over £50,270. Alternatively the Chancellor could tweak the NI thresholds. Reducing the entry threshold by £2 a week would bring lower-earners into the tax net, raising £650m over the next three years. Shaun Moore, of wealth manager Quilter, said this could be a politically insensitive move – 'as it would disproportionately affect lower-income groups who are already feeling the effects of inflation'. In addition, the Chancellor could increase the upper earnings limit for higher rate taxpayers so that more of their income attracts the 8pc NI rate as opposed to the reduced 2pc rate. Mr Moore said: 'Currently, higher earners benefit from a significant drop in their marginal NI rate once they pass the upper earnings limit. Removing or reducing this discount would raise substantial sums from high earners but could be criticised as a disincentive to high earners.' Increasing the upper earnings limit by £10 a week could rake in £660m more over the next three years, according to HMRC's calculations. If the Chancellor wanted to avoid being seen to explicitly increase tax, she could broaden the NI net instead. Mr McCann said: 'Currently employers don't pay National Insurance on money they pay into their employee's pensions. HMRC estimates the cost of this at £23.8bn a year. 'Levying employers' National insurance at 5pc on money they pay into their employees' pension would raise significant revenue, without explicitly breaking manifesto commitments.' The Chancellor increased the rate of employers' NICs from 13.5pc to 15pc in the October Budget. Mr McCann added: 'As an additional measure, the Chancellor could seek to levy employee's National Insurance on those over state pension age, who currently escape the charge on their earnings.' A Treasury spokesman said: 'As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn. 'We are committed to keeping taxes for working people as low as possible, which is why at last autumn's Budget we protected working people's payslips and kept our promise to not raise the basic, higher or additional rates of income tax, employee National Insurance or VAT.' 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.
Bloomberg
28-04-2025
- Business
- Bloomberg
Allegra Stratton: Can Rachel Reeves Juice Growth?
At the time of writing, Europe has been plunged into its most disruptive power cut in recent history – millions across Spain and Portugal are struggling without electricity. Early suggestions of a cyber attack have given way to the likelihood it was a simple technical fault. Follow Bloomberg's live blog for excellent analysis including Will Matthis on the race against time – as night approaches – for these nations to delicately restart their power. The UK is not affected but while we bask in early Summer sunshine yet more data is published indicating darker times ahead - the EY Item Club this morning halved its projected rate of growth for 2026 from 1.6% to .9%.
Daily Mail
28-04-2025
- Business
- Daily Mail
UK growth forecasts nearly HALVED for next year as hopes of US trade deal to avoid Trump's tariffs are thrown into doubt
Rachel Reeves has suffered another blow with more UK economic forecasts downgraded - as hopes of a US trade deal were thrown into doubt. The EY Item Club has slashed predictions for this year and next amid alarm at the impact of Donald Trump 's tariffs. It now expects GDP to grow 0.8 per cent in 2025, down from the 1 per cent estimated in February. For 2026 the anticipated expansion has been trimmed from 1.6 per cent to 0.9 per cent - before rebounding to 1.5 per cent in 2027. The gloomy picture emerged as ministers cautioned that efforts to strike a trade pact with America might not be successful. Rachel Reeves had been taking an optimistic tone about the prospects of an agreement to ease levies on UK car and steel exports, as well as head off the threat of the pharma industry being targeted. However, Cabinet Office minister was notably more downbeat in interviews yesterday. The EY Item Club forecasts will fuel speculation that Ms Reeves will have to increase taxes again or curb spending at the Budget this Autumn. Borrowing has come in above expectations for last year, and review bodies have recommended higher public sector pay settlements than the government offered. Mr Trump unveiled sweeping changes to US trade policy on so-called 'Liberation Day', introducing a 'baseline' 10 per cent tariff on imports from most countries around the world. About 16 per cent of UK goods exports go to the US, meaning the new tariff rate will directly impact UK growth by squashing demand for products, EY said. But the bigger hit is set to come from the indirect impact of new policy on a weaker global economic backdrop and spiralling levels of uncertainty. This is predicted to weigh on consumers who remain in a 'cautious mood' following the cost-of-living crisis, and will likely continue putting big spending decisions on hold. Businesses are also expected to limit the amount they are investing over the next two years as a result. The UK is less exposed than other countries but certain sectors such as car manufacturing and pharmaceuticals are particularly 'vulnerable', according to EY's report. This is because they trade heavily with the US or, like carmakers, are facing a higher tariff rate on exports. At the same time, EY said the Bank of England is likely to stick to its gradual approach to cutting interest rates, which are predicted to be reduced to 3.75 per cent by the end of the year, from the current 4.5 per cent level. Anna Anthony, regional managing partner for EY UK & Ireland, said: 'There had been signs that the economy was exceeding expectations in the opening months of 2025, but a combination of global trade disruption, uncertainty, and persistent inflation look likely to postpone the UK's return to more moderate levels of growth. 'Businesses thrive on certainty, so it's unsurprising that an unpredictable global market is translating into lower levels of business investment over the short term. 'While conditions remain challenging, there are still some grounds for optimism. 'The services-led UK economy is projected to see continued growth this year and gradual interest rate cuts should slowly bolster business and household spending. 'Over time, the unpredictable global landscape may offer opportunities for the UK to position itself as a stable, attractive destination for investment.'
