Latest news with #InstituteofFiscalStudies
Yahoo
25-05-2025
- Business
- Yahoo
Labour is pioneering the Blackadder approach to public finances
After Labour took office in July 2024, ministers talked relentlessly about 'finding a £22bn black hole in the public finances on entering office'. It was a cynical, deeply misleading narrative, used to justify hefty tax rises unveiled by Rachel Reeves, the Chancellor, in her October Budget but omitted from Labour's election manifesto. For the 'black hole' was, according to Paul Johnson of the Institute of Fiscal Studies (IFS), probably the UK's most respected analyst of our national accounts, 'obvious to anyone who dared look'. Labour deliberately ignored fiscal reality to serve its own political ends – a governing strategy the party now looks set to test to destruction. During the second half of 2024, the Government's endlessly downbeat 'black hole' rhetoric and tax increases hammered business and consumer sentiment, stopping economic growth in its tracks as GDP flatlined. The 0.7pc GDP uptick during the first three months of this year was a chimaera – driven above all by a 4pc surge in exports ahead of President Donald Trump's expected move to raise tariffs on goods sold in the US. The UK economy is dangerously fragile. Inflation soared to 3.5pc during the year to April, up from 2.6pc the previous month, as firms passed on Reeves's £25bn annual rise in employer National Insurance contributions (NICs) and a hefty increase in the minimum wage. That's getting on for twice the Bank of England's 2pc target, ruling out any more interest rate cuts for some months. That same NIC rise, introduced last month, meant April should have been a bumper month for tax receipts. But Labour's inflation-busting public sector pay rises and soaring welfare payments saw the Government take on £20.2bn of extra debt last month alone. Meanwhile, borrowing for the financial year ended March was £148bn – a cool £11bn more than the Office for Budget Responsibility (OBR) forecast just weeks ago in Reeve's 2025 Spring Statement. And it's an astonishing £61bn more than the watchdog's estimate back in March 2024. UK government spending has long outstripped the economy's ability to generate tax revenues, as massive annual borrowing totals add to our growing stock of national debt. The last time we ran an annual budget surplus was in 2000/01, almost a quarter of a century ago. Each year, the OBR pretends borrowing will be much lower than it actually will be – then the media fails to compare current outcomes with previous estimates, focussing instead on the political drama of future forecasts. This result is a collective obsession with ideological narrative over fiscal reality. Between 2010 and 2019, for instance, the UK's national debt ballooned from 50pc of GDP to 80pc – a period absurdly dubbed 'the austerity years'. In her Spring Statement, Reeves boasted about £9.9bn of 'headroom' she had allowed for on total spending of £1,351bn in four years' time – a contingency of well below 1pc, so small as to be meaningless. Yet she was dubbed 'the Iron Lady'! That contingency has now completely gone, in part because financial markets, alarmed at Labour's high spending, have pushed up gilt yields and, therefore, debt service costs. No less than £9bn of the £20bn borrowed last month was spent on debt interest. The annual debt service bill is now a grotesque £105bn – more than the state spends on transport and schools combined. But the main reason Reeves's 'headroom' vaporised is that growth has slowed, resulting in weaker tax receipts, and Labour's tax rises will compound the problem by slowing growth even more. The Bank of England's growth forecasts during this parliament are lower than those of the OBR, starting with 0.75pc this year, compared to a 1pc 2025 forecast from the official fiscal watchdog. If the Bank is right, Reeves's £9.9bn of headroom in four years' time turns into a £30bn shortfall, according to calculations by Elgin Advisory, a risk consultancy. Such concerns about Labour's big-borrowing, growth-sapping tendencies are increasingly evident on government debt markets. Over the last nine months, the Bank of England has dropped base rates a full percentage point from 5.25pc to 4.25pc. But long-term government borrowing costs have moved a similar amount in the opposite direction, with the 30-year gilt yield surging from 4.35pc in the run-up to Reeves's October budget to 5.55pc now. Markets and policymakers are at loggerheads, which spells looming systemic danger as the markets always win. For months, long-term borrowing costs have been above their peak during the October 2022 'mini-Budget' crisis – so where is the media outcry? Within investor circles, there is now open talk of a potential 'gilts strike' – with the Government only able to borrow at very sharply elevated interest rates – or even a 1976-style insolvency crisis. We're not there yet, but the dangers are very real. While the 'bond vigilantes' are starting to inflict pain around the world, with US and Japanese long-term yields rising, the UK is heavily exposed, lacking the 'reserve currency' might of America and with a lot of our debt held by overseas investors. Plus, a third of our government debt is index-linked – so as inflation rises, the balance sheet squeeze is punishing. 'If nothing else works, a total pig-headed unwillingness to look facts in the face will see us through'. So said General Melchett in that television comedy classic Blackadder, played by Stephen Fry. That's Labour's approach to managing our public finances – but it's anything but funny. The UK is crying out for economic leadership – in the form of fiscal discipline, lower taxes and other supply-side measures to deliver the growth needed to rescue our public finances. But, like General Melchett, this Government – and much of our political and media class in fact – is determined not to 'look facts in the face'. 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.
Telegraph
25-05-2025
- Business
- Telegraph
Labour is pioneering the Blackadder approach to public finances
After Labour took office in July 2024, ministers talked relentlessly about 'finding a £22bn black hole in the public finances on entering office'. It was a cynical, deeply misleading narrative, used to justify hefty tax rises unveiled by Rachel Reeves, the Chancellor, in her October Budget but omitted from Labour's election manifesto. For the 'black hole' was, according to Paul Johnson of the Institute of Fiscal Studies (IFS), probably the UK's most respected analyst of our national accounts, 'obvious to anyone who dared look'. Labour deliberately ignored fiscal reality to serve its own political ends – a governing strategy the party now looks set to test to destruction. During the second half of 2024, the Government's endlessly downbeat 'black hole' rhetoric and tax increases hammered business and consumer sentiment, stopping economic growth in its tracks as GDP flatlined. The 0.7pc GDP uptick during the first three months of this year was a chimaera – driven above all by a 4pc surge in exports ahead of President Donald Trump's expected move to raise tariffs on goods sold in the US. The UK economy is dangerously fragile. Inflation soared to 3.5pc during the year to April, up from 2.6pc the previous month, as firms passed on Reeves's £25bn annual rise in employer National Insurance contributions (NICs) and a hefty increase in the minimum wage. That's getting on for twice the Bank of England's 2pc target, ruling out any more interest rate cuts for some months. That same NIC rise, introduced last month, meant April should have been a bumper month for tax receipts. But Labour's inflation-busting public sector pay rises and soaring welfare payments saw the Government take on £20.2bn of extra debt last month alone. Meanwhile, borrowing for the financial year ended March was £148bn – a cool £11bn more than the Office for Budget Responsibility (OBR) forecast just weeks ago in Reeve's 2025 Spring Statement. And it's an astonishing £61bn more than the watchdog's estimate back in March 2024. UK government spending has long outstripped the economy's ability to generate tax revenues, as massive annual borrowing totals add to our growing stock of national debt. The last time we ran an annual budget surplus was in 2000/01, almost a quarter of a century ago. Each year, the OBR pretends borrowing will be much lower than it actually will be – then the media fails to compare current outcomes with previous estimates, focussing instead on the political drama of future forecasts. This result is a collective obsession with ideological narrative over fiscal reality. Between 2010 and 2019, for instance, the UK's national debt ballooned from 50pc of GDP to 80pc – a period absurdly dubbed 'the austerity years'. In her Spring Statement, Reeves boasted about £9.9bn of 'headroom' she had allowed for on total spending of £1,351bn in four years' time – a contingency of well below 1pc, so small as to be meaningless. Yet she was dubbed 'the Iron Lady'! That contingency has now completely gone, in part because financial markets, alarmed at Labour's high spending, have pushed up gilt yields and, therefore, debt service costs. No less than £9bn of the £20bn borrowed last month was spent on debt interest. The annual debt service bill is now a grotesque £105bn – more than the state spends on transport and schools combined. But the main reason Reeves's 'headroom' vaporised is that growth has slowed, resulting in weaker tax receipts, and Labour's tax rises will compound the problem by slowing growth even more. The Bank of England's growth forecasts during this parliament are lower than those of the OBR, starting with 0.75pc this year, compared to a 1pc 2025 forecast from the official fiscal watchdog. If the Bank is right, Reeves's £9.9bn of headroom in four years' time turns into a £30bn shortfall, according to calculations by Elgin Advisory, a risk consultancy. Such concerns about Labour's big-borrowing, growth-sapping tendencies are increasingly evident on government debt markets. Over the last nine months, the Bank of England has dropped base rates a full percentage point from 5.25pc to 4.25pc. But long-term government borrowing costs have moved a similar amount in the opposite direction, with the 30-year gilt yield surging from 4.35pc in the run-up to Reeves's October budget to 5.55pc now. Markets and policymakers are at loggerheads, which spells looming systemic danger as the markets always win. For months, long-term borrowing costs have been above their peak during the October 2022 'mini-Budget' crisis – so where is the media outcry? Within investor circles, there is now open talk of a potential 'gilts strike' – with the Government only able to borrow at very sharply elevated interest rates – or even a 1976-style insolvency crisis. We're not there yet, but the dangers are very real. While the 'bond vigilantes' are starting to inflict pain around the world, with US and Japanese long-term yields rising, the UK is heavily exposed, lacking the 'reserve currency' might of America and with a lot of our debt held by overseas investors. Plus, a third of our government debt is index-linked – so as inflation rises, the balance sheet squeeze is punishing. 'If nothing else works, a total pig-headed unwillingness to look facts in the face will see us through'. So said General Melchett in that television comedy classic Blackadder, played by Stephen Fry. That's Labour's approach to managing our public finances – but it's anything but funny. The UK is crying out for economic leadership – in the form of fiscal discipline, lower taxes and other supply-side measures to deliver the growth needed to rescue our public finances. But, like General Melchett, this Government – and much of our political and media class in fact – is determined not to 'look facts in the face'.
Sky News
19-03-2025
- Business
- Sky News
Labour created the welfare state. Now, it's intent on cutting it back
Why you can trust Sky News Labour was the party that created the welfare state. Now it is intent on cutting it back. And in Liz Kendall, the government has found a Labour work and pensions secretary clearly entirely comfortable in going harder on benefit cuts than any of her Conservative predecessors since 2015, according to the Institute of Fiscal Studies. When I ask her about that, she is unrepentant and unfazed by colleagues' criticisms. 2:58 "I am going to be a Labour work and pensions secretary who fixes a broken system," she said, "who says to people who've been written off and denied chances and choices that we believe in them... "I am cross, because I've seen in my own constituency people written off to a life that is not the life they hoped for themselves or their children or their families. "I want to fix it. And that's what I'm determined to do." This, then, is the moral case for reform that she and the prime minister have talked about in recent weeks. And on Tuesday, Ms Kendall outlined reforms designed to reduce those claiming the main disability, with hundreds of thousands of people expected to lose personal independence payments (PIP) if they suffer from milder mental health conditions and less severe physical difficulties. 3:38 The target is to save £5bn from a disability benefits bill for working-age people set to balloon by over £20bn to £75bn by the end of the decade. Ask some in Labour and they will privately acknowledge and argue this is but a drop in the ocean, with one insider telling me this week they didn't think the reforms went far enough. "I don't think people have clocked the size of the numbers going on here," they said. Look at the public finances and you can see why. While the Labour Party clearly talked about welfare reform in its manifesto, it never signalled it would make these sorts of cuts to the benefits bill. But the environment has changed. 2:58 Growth is sluggish, which many businesses - and the opposition - blame on tax rises in the October budget, while the cost of government borrowing is on the rise. The chancellor now finds herself with a hole in the public finances to the tune of £9.9bn, which she has to fill if she is to fulfil her self-imposed fiscal rule that day-to-day government spending must be funded through tax receipts - not borrowing - by 2029/30. She was crystal clear to me in our conversation for the Sky News' Electoral Dysfunction podcast that she was not going to loosen her fiscal rules - although many MPs think she should. She was also clear she wasn't coming back with more tax rises. Instead it will be spending cuts, and welfare is the first wave, with a spending squeeze across Whitehall departments expected in the Spring Statement. 3:06 Sir Keir Starmer told me last week that his plans to reform the state, with thousands of job cuts already signalled in NHS England and benefit cuts, that there will be "no return to austerity". His hope is that reform - be it through technology or efficiency savings - can mean public services are maintained even if rates of spending growth are reduced. It may not feel like that for those who are at the sharp end of the £5bn of benefit cuts coming down the track. Liz Kendall would not rule out further cuts to the welfare bill further down the line in an interview with Sky News on Tuesday, which will make many in her party nervous with some MPs and ministers concerned about the motivations of the government in its overhaul of the benefits system. "The intellectual question hasn't been answered here: is this about principled reform or is it a cost-saving exercise?," one cabinet source told me on Tuesday. "There are some concerns this doesn't fix the issues around welfare but rather is about finding quick savings." There will be unease among MPs, unions and charities as the Labour Party moves onto traditional Tory territory with welfare cuts as a strapped Labour government looks for savings. It is uncomfortable terrain. "I have to say these are Conservative policies that Labour MPs will be voting for," the former Tory work and pensions secretary Baroness Coffey told me on Tuesday. "Overall, I think a lot of Labour MPs will be very unhappy about what they heard today [but] I think the Conservatives will support a considerable amount of that because, as I say, a lot of this was Conservative policy. We didn't have time to do the legislation, unfortunately, towards the end of the parliament." Sir Keir Starmer has the majority to bring in these changes, but cutting the benefits of those living with disabilities will be controversial in the Labour movement even if the measures are more popular with the wider public. As one veteran Labour MP put it to me: "This is one of these issues that come back to bite later." The devil will be in the detail, and for now, hundreds of thousands of benefits recipients don't know if they will still be eligible for the main disability benefit - personal independence payments - in the coming months, with the government yet to outline where the £5bn of savings will be found. It is an anxious time for those who rely on the welfare state. How long a shadow these reforms will cast over Sir Keir's domestic agenda is hard to tell - but these reforms look set to become his hardest sell.
Yahoo
19-03-2025
- Business
- Yahoo
What Labour's welfare cuts mean for benefit claimants – and the other support available
Millions of benefit recipients are set to see their incomes cut or their entitlements taken away following Labour's decision to slash £5 billion from the welfare spending bill. A slate of reforms were announced by Liz Kendall on Tuesday, as expected focusing on health and disability-related benefits. The two most commonly claimed – the Personal Independence Payment (PIP) and the health element of Universal Credit – are both set to see major changes. The work and pensions secretary said: 'There's clear evidence that shows good work is good for health and plays a vital role in recovery. Too many disabled people and people with health conditions want to work but are denied the right support to do so. 'Tackling this is central to our commitment to spread opportunity and improve the health of the nation.' But preliminary analysis suggests that the changes will see around 900,000 PIP claimants worse off by £2,400 per year in 2028/29. Meanwhile, around 2.4 million families claiming the health element of Universal Credit will lose around £280 a year, the research from the Institute of Fiscal Studies (IFS) found. And this is just the impact on those currently claiming the benefit. From April 2026, the rate of the UC health element will be cut by nearly 50 per cent, from £97 per week to £50 per week. This will be mean £2,500 less a year for new claimants, even after the £7 a week flat-rate rise to the standard UC allowance. The government is set to release a full assessment on the impact of the changes next week, revealing exactly how many people will be affected and how. James Taylor, Executive Director of Strategy at disability equality charity Scope, said: 'The biggest cuts to disability benefits on record should shame the government to its core. They are choosing to penalise some of the poorest people in our society. Almost half of families in poverty include someone who is disabled.' The announcement will inevitably come as a disappointment to millions of disabled people living the UK, many of whom will now be faced with a real-terms cut to their livelihoods. There is no replacing the income that will be lost from the changes, but it can be helpful to ensure you are claiming all the support you are entitled to. Here's a guide to some of the other support available for those who are concerned about the cuts: First thing's first, these changes are not coming in immediately. They will be subject to lengthy consultations and a legislative process which means they will take a while to come into force. The earliest scheduled changes are set to come into effect in April 2026, when UC rates for those in receipt of the UC health element will be frozen, and is slashed for new applicants. This means anyone who believes they are eligible for the health element of Universal Credit should consider applying as soon as possible. This will ensure that they are able to keep the receiving the payment at the previous amount, worth a massive £2,500 a year. It is also worth considering applying for PIP now if you think you might be eligible. It won't be until 2028 that the criteria for the benefit is changing to make it more difficult to claim, as well as the assessment for it being combined with the one for UC's health element. For those who need help with coping day-to-day, local councils have an obligation to offer support through their social services. Anyone can request a care needs assessment from their local council, either by calling them or online. It works similar to PIP, providing support for specific needs. This could be things such as equipment like a walking frame or personal alarm; changes to the home, like as a walk-in shower; practical help from a paid carer; and day care for your child if either you or they are disabled. To assess eligibility, the council will arrange an assessment with someone from their services, like a social worker or occupational therapist. They may also recommended that you be referred for a home adaptations assessment, something else you can also apply for yourself. Attendance allowance is a benefit for pensioners who have a disability or health condition severe enough to need someone to regularly help them. The DWP benefit can pay up to £108.55 a week, adding up to an total of £5,644. Crucially, the payment is not means-tested, meaning anyone who qualifies will get it regardless of their income or savings. There are many common health conditions that could qualify a person for attendance allowance. These include arthritis, blindness, heart disease, Parkinson's and asthma. Attendance allowance is paid at two rates depending on the level of care that is needed. The higher rate is worth £108.55 a week, while the lower is worth £72.65 a week. Benefits support The Trussell Trust and Citizens Advice offer a Help through Hardship helpline on 0808 208 2138. It is a free and confidential phone service that provides advice to people experiencing hardship. Turn2Us provides a free benefits calculator to help people find out what benefits they can claim. The charity also offers a grants search service and PIP helper. Local services for benefits and support can be found on the Law Centres website, as well as the Citizens Advice Bureau finder. For the latest benefit payment dates and updates, you can visit The Independent's regularly updated guide. Mental health support In the UK and Ireland, Samaritans can be contacted 24 hours a day, 365 days a year. You can call them for free on 116 123, email them at jo@ or visit to find your nearest branch. Mind runs a support line on 0300 102 1234 which provides a safe and confidential place to talk about how you're feeling. There is also an information line on 0300 123 3393 for nearby support, and a welfare benefits line on 0300 222 5782 to support the mental health of those navigating the benefits system. Disability charity Scope has a forum where people can have supportive chats to others going through the same experiences. NHS England offers an online mental health triage service.
Yahoo
18-03-2025
- Business
- Yahoo
What Labour's welfare cuts mean for benefit claimants – and the other support available
Millions of benefit recipients are set to see their incomes cut or their entitlements taken away following Labour's decision to slash £5 billion from the welfare spending bill. A slate of reforms were announced by Liz Kendall on Tuesday, as expected focusing on health and disability-related benefits. The two most commonly claimed – the Personal Independence Payment (PIP) and the health element of Universal Credit – are both set to see major changes. The work and pensions secretary said: 'There's clear evidence that shows good work is good for health and plays a vital role in recovery. Too many disabled people and people with health conditions want to work but are denied the right support to do so. 'Tackling this is central to our commitment to spread opportunity and improve the health of the nation.' But preliminary analysis suggests that the changes will see around 900,000 PIP claimants worse off by £2,400 per year in 2028/29. Meanwhile, around 2.4 million families claiming the health element of Universal Credit will lose around £280 a year, the research from the Institute of Fiscal Studies (IFS) found. And this is just the impact on those currently claiming the benefit. From April 2026, the rate of the UC health element will be cut by nearly 50 per cent, from £97 per week to £50 per week. This will be mean £2,500 less a year for new claimants, even after the £7 a week flat-rate rise to the standard UC allowance. The government is set to release a full assessment on the impact of the changes next week, revealing exactly how many people will be affected and how. James Taylor, Executive Director of Strategy at disability equality charity Scope, said: 'The biggest cuts to disability benefits on record should shame the government to its core. They are choosing to penalise some of the poorest people in our society. Almost half of families in poverty include someone who is disabled.' The announcement will inevitably come as a disappointment to millions of disabled people living the UK, many of whom will now be faced with a real-terms cut to their livelihoods. There is no replacing the income that will be lost from the changes, but it can be helpful to ensure you are claiming all the support you are entitled to. Here's a guide to some of the other support available for those who are concerned about the cuts: First thing's first, these changes are not coming in immediately. They will be subject to lengthy consultations and a legislative process which means they will take a while to come into force. The earliest scheduled changes are set to come into effect in April 2026, when UC rates for those in receipt of the UC health element will be frozen, and is slashed for new applicants. This means anyone who believes they are eligible for the health element of Universal Credit should consider applying as soon as possible. This will ensure that they are able to keep the receiving the payment at the previous amount, worth a massive £2,500 a year. It is also worth considering applying for PIP now if you think you might be eligible. It won't be until 2028 that the criteria for the benefit is changing to make it more difficult to claim, as well as the assessment for it being combined with the one for UC's health element. For those who need help with coping day-to-day, local councils have an obligation to offer support through their social services. Anyone can request a care needs assessment from their local council, either by calling them or online. It works similar to PIP, providing support for specific needs. This could be things such as equipment like a walking frame or personal alarm; changes to the home, like as a walk-in shower; practical help from a paid carer; and day care for your child if either you or they are disabled. To assess eligibility, the council will arrange an assessment with someone from their services, like a social worker or occupational therapist. They may also recommended that you be referred for a home adaptations assessment, something else you can also apply for yourself. Attendance allowance is a benefit for pensioners who have a disability or health condition severe enough to need someone to regularly help them. The DWP benefit can pay up to £108.55 a week, adding up to an total of £5,644. Crucially, the payment is not means-tested, meaning anyone who qualifies will get it regardless of their income or savings. There are many common health conditions that could qualify a person for attendance allowance. These include arthritis, blindness, heart disease, Parkinson's and asthma. Attendance allowance is paid at two rates depending on the level of care that is needed. The higher rate is worth £108.55 a week, while the lower is worth £72.65 a week. Benefits support The Trussell Trust and Citizens Advice offer a Help through Hardship helpline on 0808 208 2138. It is a free and confidential phone service that provides advice to people experiencing hardship. Turn2Us provides a free benefits calculator to help people find out what benefits they can claim. The charity also offers a grants search service and PIP helper. Local services for benefits and support can be found on the Law Centres website, as well as the Citizens Advice Bureau finder. For the latest benefit payment dates and updates, you can visit The Independent's regularly updated guide. Mental health support In the UK and Ireland, Samaritans can be contacted 24 hours a day, 365 days a year. You can call them for free on 116 123, email them at jo@ or visit to find your nearest branch. Mind runs a support line on 0300 102 1234 which provides a safe and confidential place to talk about how you're feeling. There is also an information line on 0300 123 3393 for nearby support, and a welfare benefits line on 0300 222 5782 to support the mental health of those navigating the benefits system. Disability charity Scope has a forum where people can have supportive chats to others going through the same experiences. NHS England offers an online mental health triage service.
