Quaint

Chancellor’s headroom to halve because of Iran war inflation and weak growth

Chancellor John Healey will face pressure to raise taxes or cut spending at next month’s Budget, as soaring borrowing costs because of the Iran war and weaker growth has wiped nearly £12 billion off the Government’s fiscal headroom, according to a new report.

The latest KPMG economic outlook estimates that Mr Healey could be left with headroom of about £12 billion in the autumn, down from £23.6 billion at the time of the spring forecast.

It said rising borrowing costs on the UK’s debt after the Middle East conflict has already cut about £9 billion off the headroom, with sluggish growth and expected downgrades from the Office for Budget Responsibility (OBR) likely to to reduce it by about another £2 billion.


Surely referring to John Healey by the quaint olde worlde title of 'Chancellor of the Exchequer' has become an embarrassing anachronism. With a UK national debt of about £3 trillion, His Majesty's Treasury must be knee-deep in IOUs and very little treasure.

It would more honest if we were to replace the title 'Chancellor of the Exchequer' with some reference to a role which eschews plundering the economy as an answer to everything. A role tasked with cutting government waste, enforcing budgetary control, abolishing Net Zero, eliminating the patronage network...

Nope, that's all too fanciful.

 

To put responsibility on the shoulders of a tamed man

John Caudwell: I backed Labour, but they haven’t kept their promises

We should be making it easier for entrepreneurs to invest, employ and expand. Instead Labour has given them more reasons to look elsewhere, writes John Caudwell...

Andy Burnham says he wants to be pro-business and I take him at his word. I want this government to succeed, and so do the founders who back this campaign, as for the benefit of the general population, we need to deliver growth.

The Budget on 28 October is the moment to show that. Get it right and the founders now weighing up their options will build their next companies here. Get it wrong and they will build them abroad, leaving Britain with fewer companies, weaker growth and fewer jobs in every part of the country.

 Andy Burnham says he wants to be pro-business and I take him at his word. A strange thing to say unless it is rhetorical and more challenge than expectation. At least as much hope as expectation perhaps. Yet it does suggest how far adrift we are economically. 

The political hunger for more taxation is out there in the open, along with ceaseless propaganda from the usual suspects. For Burnham to be pro-business, that tax hunger would have to remain unappeased which would be politically difficult. 

Even more difficult, would be the pro-business necessity to tackle what has become obvious tax plundering and cut it deeply enough to generate significant economic growth. 

Sounds unlikely. It would probably lead to a political storm before the growth, plus campaigns to undermine Burnham as Prime Minister. He knows all this of course, he comes across as a tamed politician, tamed by Labour and the tax and spend Establishment. Willingly tamed too, if his political history is any guide, which it almost certainly is. 

Many people expect more tax plundering on 28 October. As furtive as possible perhaps, but it's not an unreasonable expectation. Managing the machinery of government is difficult, so most professional politicians prefer to duck and dive. It's what they do best, the act they were tamed to perform.

Disguising the new-build tax take

Alan Hibben has a very interesting CAPX piece on the hidden regulatory costs of new-build houses in England. Interesting because it is yet another example of the remarkably furtive and opaque nature of taxation.

But they like it like that


Your new home comes with a hidden tax bill

• The buyer of a £450,000 new-build in England is paying £65,500 in public-policy costs
• Disguising the true tax take has become a political art form in modern Britain
• Buyers of new homes need to be shown where their money is going

When a household pays £450,000 for a new home in England, a striking share of that price is not paying for bricks, mortar or even land. It is paying for planning obligations, biodiversity rules, regulatory overhead and delay-driven finance costs – none of which is itemised for the family that ultimately bears the cost. Stamp duty adds to the burden, although that at least is visible on the completion statement; the rest is simply buried in the price. This opacity is not accidental. It is a core feature of modern British government, where disguising the true tax take has become a political art form.

The result is a system in which the buyer of a modest new home is quietly funding affordable housing, local roads, biodiversity credits, planning bureaucracy and the cost of navigating a slow, discretionary planning system. Yet the buyer is never shown the bill. Britain needs legislated transparency for every new-build sale, so households can finally see where their money is going.


The whole piece is well worth reading, even for those who have no intention of buying a new-build house.

A simple reform: show buyers the bill

If the British state wishes to fund affordable housing, local roads, habitat creation and planning administration through new development, it can do so. But it should do so honestly. A standardised ‘new home cost statement’ attached to every new-build sale would show the estimated per-home incidence of planning obligations, biodiversity obligations, major planning and regulatory fees and SDLT.

Britain is going bankrupt in slow motion

Daniel Herring has a useful CAPX piece on the unsustainable nature of UK debt.


Britain is going bankrupt in slow motion

• The OBR says UK debt is on course to hit 300% of GDP by 2075
• If politicians wait until 2052 to act, the spending cuts needed more than double
• Sooner or later, taxes rise, spending falls or growth accelerates – duck all three, and we face fiscal catastrophe

The OBR’s latest Fiscal Risks and Sustainability report, published this week, gives a blunt assessment of the UK’s public finances: we can’t go on like this. If nothing changes, government debt will rise to an unsustainable 300% of GDP in 50 years’ time.

How did things get so bad? Well, there’s one big demographic challenge driving that number: the UK is an ageing society, with the median age projected to rise from 40 in 2025 to 49 in 2075. An older society is expensive; as each year passes, demands on the state by retirees gets larger, while the workforce that has to pay for it all gets smaller (first in relative terms, and eventually in absolute terms as well).


A familiar problem but the whole piece is still well worth reading as a reminder that this one isn't going away if voters continue to vote for political parties with no interest in resolving it. The political fads, environmental fantasies and antiquated ideologies we are still seeing today won't do it.

But we already know that.


The OBR report highlights the challenges an ageing population poses for the UK: sooner or later, taxes rise, spending falls or growth accelerates – duck all three, and we go bankrupt. How painful the correction turns out to be remains a political choice.

The UK is sick – but far from terminal. It needs medicine now: cuts to public spending, less reliance on the state and a relentless focus on growth. Prompt action will restore a healthy economy and sound public finances. Waiting will make things much worse.

Rich people could just move

Mitchell Palmer has a useful CAPX reminder of why the good folk at Makerfield didn't know what they were likely to end up with by voting for Andrew Burnham as their new MP. In particular, they didn't know if he would continue failed redistributionist policies of the past. 

The whole piece is well worth reading as yet another example of how easily voters are steered into voting for more of the same.

   

Burnham’s fantasy about ‘trickle down economics’

• The economic argument for lower marginal tax rates on higher incomes is not that giving rich people more money will make them generously sprinkle it over the poor
• The real question is not whether the rich are getting more than their ‘fair share’ but whether Britain can afford to keep punishing work, saving, investment, and enterprise
• Rich people could just move to Dubai, Singapore, or even Italy

In a recent speech, Andy Burnham, Makerfield’s new MP and likely our next PM, said he would end ‘trickle-down’ economics. What on earth was he talking about?

The Left often accuses the Right – and particularly the last Conservative government – of practising this voodoo art form. Supposedly, right-wingers give tax breaks to the ‘rich’ in the sure and certain hope that these tax breaks will ‘trickle down’ to the poor. Or, as is often asserted, they might do so to curry political favour from their ‘mates’. After all, as Peter Manion said in The Thick of It, ‘some of my best friends are money-grabbing w*****s’.

As a description of the last Tory government’s actions, nothing could be further from the truth. Between 2010 and 2024, the only group who saw their direct tax bill increase were the top 10% of income earners. Today, the top 10% of income earners earn 34% of the income, but pay 59% of the income tax, up from 55% in 2010. If successive Tory Chancellors believed in a supposed ‘trickle-down’ theory, they were incompetent at executing it.

Why Burnham Will Fail

Mani Basharzad has a useful CAPX piece on how misunderstanding the nature of investment is a major reason why the UK Left fails to invest effectively. An old problem but the whole piece is worth reading as a reminder that voting for Andrew Burnham always had little chance of being a successful vote. 

Burnham could turn out to be better than disastrously useless, but the political culture of his party does not offer much room for optimism. It never did.  

What the Left doesn’t get about investment

• Left-wing economists conclude that government, through public spending, can simply increase investment and therefore create growth
• Investment isn't a magic variable that automatically creates growth simply by increasing it
• Politicians simply do not have the incentives to allocate capital in the most efficient way

Investment isn’t a magic variable that automatically creates growth simply by increasing it. As Andrew Lilico wrote, “Investment doesn’t create growth. It’s opportunities for growth that create investment.” Investment is not merely another variable in an economic formula that can be turned up at will. It is itself dependent on wider market conditions. What the UK faces is not a lack of investment but a lack of opportunities for investment, with the rhetoric of wealth taxes and exit taxes making investors increasingly uncertain about committing capital to the country.

 This is one of the mistakes the Labour government has made under Keir Starmer: investment for the sake of investment. As Rachel Reeves declared, “The only way to drive economic growth is to invest, invest, invest. There are no shortcuts.” But when investment is not driven by market forces, it creates two phenomena: malinvestment and overconsumption. You may spend billions of pounds on Net Zero and create new green jobs, but that is merely the seen rather than the unseen. The unseen consists of the jobs that could have been created in more productive sectors but were crowded out by this policy.

An unambiguously negative development

Andy Burnham warned 'basket case' Britain cannot withstand any more tax hikes as economy flounders

Andy Burnham has been warned that ‘basket case’ Britain cannot withstand any more tax hikes after a bleak two years for the economy under Labour...

Matthew Ryan, head of market strategy at Ebury, added: ‘Sterling and gilts are holding up for now, but we view this as an unambiguously negative development for UK assets.

‘Burnham sits firmly to the left of the Labour Party, and his record as mayor points to a significant step-up in public spending, a higher tax burden and greater gilt issuance. This is an experiment that the UK can ill-afford.

‘The critical near-term question is who becomes Chancellor. Any indication that a new Chancellor intends to loosen or abandon the existing fiscal rules could trigger fresh selling in UK assets.’

 

I lived upon words, and believed in phantoms.

Ivan Turgenev – Rudin (1856)

They live in an economic fantasy land

Labour’s taxes are driving jobs offshore, says AO World boss

John Roberts, the company's founder and chief executive, also accused ministers of living in an "economic fantasy land" and failing to understand the impact of higher taxes and wage costs on employers.

The online electricals retailer said it had offshored around 150 sales and call-centre jobs to South Africa, generating savings of about £2m, and that it expects annual savings to reach £4m.

Mr Roberts, who founded the fridge and washing machine retailer in 2000, said: "The brutal truth is that of course these roles could have been in the UK.

"When you make these staff ever more expensive and ever more inflexible, that's what businesses are going to do.

"We've got a political class that doesn't understand business. They live in an economic fantasy land."

Our political class does live in an economic fantasy land, we know that, but it's also the land far too many voters vote for decade after decade. Apparently it's where they think they can live without bad things happening. 

Bad things are happening.

Why does the state keep costing more while delivering so little?

Damian Pudner has a useful CAPX reminder of the UK government's intransigent unwillingness to manage the economy and its own activities in a sustainable manner.


Reeves is closer to an IMF bailout than she thinks

• The IMF's former chief economist is worried about the UK
• Britain's debt interest bill has nearly tripled since 2019
• The gilt market has no patience for political cowardice

Britain’s national debt is on course for £3 trillion this year. Servicing it costs £30 billion a year at 1% interest and £150 billion at 5%, near where long-dated gilts have recently been trading. That’s a number so big it almost becomes meaningless. So, let’s try another way: it’s about the yearly gross pay of nearly four million median full-time workers.

That’s the background to Kenneth Rogoff’s warning that Britain has a better than 50:50 chance of a major debt crisis before 2030. Rogoff is not an excitable commentator. He is a former chief economist of the IMF, a Harvard professor and co-author of one of the gravest studies of sovereign debt crises ever written.


Familiar but well worth reading because of the question it raises - what is the state for?


Welfare alone is forecast to cost £333bn in 2025-26. The triple lock keeps adding pressure to the pensions bill, year after year, regardless of the state of the public finances. Meanwhile the public-sector workforce, payroll and pension promises have all grown through supposedly austere times, without anything like the productivity gains needed to justify the expense.

This is the conversation Westminster avoids because it leads straight to the real question: what is the state for, what can it afford and why does it keep costing more while delivering so little?

Too little, too late

Damien Phillips has an interesting Centre Write piece on Keir Starmer's self-inflicted failure to promote economic growth.


Deal with Gulf countries too little, too late to save Starmer

It is a mark of how much the Government is struggling that even when it scores a clear win, the voters do not care, and the news quickly vanishes from the front pages. The recent signing of a major free trade deal with the Gulf Cooperation Council (GCC), comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE is a classic example.

The agreement, four years in the making and the first of its kind signed between the GCC and a G7 country, would be the feather in the cap of any successful British Government. Worth around £3.7 billion (0.1%) in annual GDP gains to the UK economy, the deal is predicted to raise total UK wages by £1.9 billion and generate £15.5 billion in additional trade each year over the long term...

But behind the headline figures for the agreement are the missed opportunities for boosted growth and investment that Britain could have got out of this deal if the UK economy were more competitive and dynamic. The Gulf has vast reserves of surplus capital available for investment in the UK, but Labour has done its best to deter as much of it as possible. Keeping corporation tax at 25% and jacking up employer NICs have been accompanied by rising employment costs through an increasingly unaffordable minimum wage and onerous labour market regulations via Angela Rayner’s Employment Rights Act. Add to this the uncertainty around wealth and capital gains taxation, and the Government has created the sense that Britain is a hostile environment for business and mobile global capital.


The whole piece is well worth reading as we watch an unfolding Labour leadership challenge which seems to be wholly irrelevant to the economic challenges we face. 


Although the Government has had some successes with trade and investment on the international stage, unfortunately for Starmer, the Government’s domestic economic failures and its lack of ambition on free trade have killed any prospect of the voters feeling the benefits in time to save his beleaguered premiership.

They’re economically illiterate

 

Britain is poorer than people think

Matthew Lesh has a useful CAPX piece on an old British problem, the sluggish nature of economic growth. Worth reading, although voting for political charlatans and loons who don't believe in economic growth is also an old British problem. They don't believe in education either. 


Britain is poorer than people think

• New polling shows that growth still matters to the British public
• Britons know something has gone badly wrong – they just need to see how far we’ve fallen
• The public want prosperity, not excuses

Not too long ago Keir Starmer was banging on about how growth is his ‘number one mission’. Now, with the economy once again faltering – real GDP grew by an anaemic 0.1% in the last quarter of 2025, following an equally disappointing 0.1% in the previous quarter – we are hearing a bit less on this topic.

But have no doubt: the British public still dreams of a more prosperous society.

An expansive new public opinion research project, published by the Institute of Economic Affairs and undertaken by Freshwater Strategy, highlights that despite widespread pessimism, few have given up. When asked whether the UK should focus more on growth, an overwhelming 87% agree, compared to just 9% who say the country is already wealthy enough. This view cuts across the usual political divides, with strong support across genders, age groups, educational levels and regions. We may have a more divided politics than at any time in modern history, but there’s at least one thing pretty much everyone agrees on: growth.

The UK was already floundering

'Economically naive, ignorant and at times stupid': Labour blasted as UK hurtles towards recession

Britain faces a painful bout of stagflation and even recession as business is battered by soaring costs stemming from the Iran war on top of Labour's tax hikes.

In a bleak report, S&P Global said its index of activity among UK services firms crashed to an 11-month low of 50.5 last month...

Chancellor Rachel Reeves has warned that Britain faces ‘significant’ economic challenges as a result of the conflict in the Middle East.

But analysts said the UK was already floundering before the war erupted – with recent official figures showing the economy was no bigger in January than it was in June last year.

Clive Black, an analyst at City broker Shore Capital, said: ‘An economically naive, ignorant and at times stupid UK Government will soon be blaming international affairs for a potential recession that exposes its poor policymaking.’

It's not news of course, we already know this absurdly ideological government is floundering when it comes to carrying out its economic role. Everyone who pays attention to these issues knows it and also knows the main political actors will continue to blame international affairs.

Yet Polanski's Greens would be worse.

Strewth.

The Universal Labour Era

An interesting People News piece on a Chinese government push for the elderly to re-enter the workforce, a move towards what is being called the 'universal labour era'. 

Shanghai Issues 'Work Urging Order' to the Elderly: Is the Social Security Fund Running Dry?

In the vibrant city of Shanghai, known as the most prosperous and astute city in China, a peculiar event has unfolded in recent days. Zhang, who was born in 1962 and just celebrated his 64th birthday, found himself unexpectedly urged by the government to return to work. After navigating through waves of layoffs and stock market fluctuations, he is now set to restart his life in the latter half as a 'senior intern.' The government's push for the elderly to re-enter the workforce has quickly become a trending topic.

On March 19, 28 departments in Shanghai collaborated to issue a document, delivering a 'work urging order' to the elderly. This initiative not only responds to the call of the Two Sessions but also serves as a form of 'self-rescue' by the government in light of a 35 billion yuan pension shortfall...

The document from Shanghai is certainly not an isolated incident. It marks the beginning of the entire nation transitioning into the 'universal labour era' as the mainland gradually implements delayed retirement policies.

Hypnodosh

Kristian Niemietz has a useful Critic piece on Zack Polanski and his plans to dazzle low carbon voters with yet more incoherence. This time it's economics. 


Zackonomics is incoherent and outdated

Zack Polanski is a great political entrepreneur but he is terrible at economics

So this is it. Zackonomics.

Today, Green Party leader Zack Polanski outlined his economic philosophy at an event organised by the New Economics Foundation (NEF). I will not pretend that I was listening with a completely open mind: I mostly made up my mind about Zackonomics on the day when Polanski said that his three favourite economists were Gary Stevenson, Richard Murphy and Grace Blakeley.

My issue with that is not that all three of those are completely wrong about economics (although they are). It’s that they are all wrong in very different, and mutually incompatible ways. You can be a fan of each of them in isolation (although you really shouldn’t), but you cannot, in a meaningful way, be a fan of all three of them at the same time.

The whole piece is worth reading as a reminder that numbers sometimes matter a great deal. The number of useful idiots who vote for example.  

I could go on, but I realise that I am missing the point by judging Zackonomics by the standards of a conventional economic policy programme. Zack Polanski may be terrible at economics, but he is a great entrepreneur — a political entrepreneur, that is. The lesson from Corbynmania, the Greta Thunberg movement, BLM, Extinction Rebellion, Just Stop Oil, the gender movement and the Palestine movement is that there is a lot of vaguely youthful, vaguely left-wing, vaguely anti-capitalist political energy around. That energy was looking for a political outlet, a gap in the market which Polanski spotted and filled. I wish he had used his talents to become an actual entrepreneur in the private sector instead, creating wealth rather than promoting ideas that destroy it.

Infantile fantasists run our economy

 

Labour’s First Mission

 

Reeves slammed for 'taking eye off ball' as UK economy up by just 0.1%

Britain’s sluggish economy stayed firmly “stuck in a rut” in the fourth quarter of 2025 when GDP advanced by just 0.1%.

The weaker than expected figures from the Office for National Statistics (ONS) suggest the damaging speculation during the long build-up to the late November Budget hit economic activity at the end of the year.

They will make bleak reading for Sir Keir Starmer and Chancellor Rachel Reeves who were elected to power in July 2024 promising to make growth Labour’s “first mission.”


It may be worth pointing out that GDP growth of 0.1% doesn't mean much in itself, but it is a reliable indication that Rachel from Accounts doesn't know what she is doing, neither does Starmer and neither does the Treasury. For all anyone knows, economic activity could have declined.

They should ask Jim Ratcliffe what the problem is, but everything we've seen suggests that Starmer isn't keen on people who know things, he's much more comfortable with people who don't. 

Even Wronger Growth

Revealed: Economy shrank 0.1% in October amid budget leaks chaos

The latest Gross Domestic Product (GDP) figures, released on Friday morning, show that the economy unexpectedly contracted in the month leading up to Chancellor Rachel Reeves’ November budget.

That period saw a flurry of leaks over potential tax cuts being eyed up by the Chancellor.

Ms Reeves has admitted the leaks were "very damaging".

The GDP figure for October falls below the 0.1% growth that analysts had been expecting.


Time to run the figures through the Reeves-Starmer Adjusteramer™

The Wrong Growth

'A generation's future is at risk': PwC warns on youth unemployment

Jake Finney, an economist at PwC, said: ‘The UK youth jobs market has deteriorated sharply, the steepest decline in the G7.

'Young people account for over half the rise in unemployment since mid-2022, despite making up under a fifth of the working-age population. Young workers have inevitably felt the squeeze.

‘They are concentrated in entry -level roles, leaving them more exposed than colleagues with longer tenure.’

It is not easy to say something new about a UK Prime Minister and his Chancellor of the Exchequer who slithered into their wholly undeserved roles loudly promoting economic growth as their primary economic goal before stifling with policies obviously inimical to growth. 

'Stupid' doesn't work as a complete description even though it is stupid. It has been clear from the Tony Blair years that UK governments do not see their role as being wholly defined by UK interests and the interests of UK voters. For them, that's history book stuff.

Be Bold With The Wrecking Ball

 

Be bold with tax hikes or risk 'groundhog day', chancellor told as low growth recorded

Rachel Reeves faces the prospect of another "groundhog day" unless next month's budget goes further than plugging an estimated £22bn black hole in the public finances, according to a respected thinktank

The Institute for Fiscal Studies (IFS) said there was a "strong case" for the chancellor to substantially increase the £10bn headroom she has previously given herself against her own debt rules, or risk further repeats of needing to restore the buffer in the years ahead.

Modern men and women who live in industrial cities are like mice that have come out of the fields to live in houses that do not belong to them.

Now and then a bold mouse stands upon his hind legs and addresses the others. He declares he will force his way through the walls and conquer the gods who have built the house. "I will kill them," he declares. "The mice shall rule. You shall live in the light and the warmth. There shall be food for all and no one shall go hungry."

Sherwood Anderson – Poor White (1920)