No safe havens for wealth
Days before Britain’s autumn Budget, there was speculation that like last year, the rich class would face fresh tax blows. Headlines screamed that the country’s richest, Lakshmi Mittal, had decided to shift elsewhere because of the taxing tax problems. What irked him was last year’s inheritance tax, according to media reports, as well as the growing feeling among the ruling labour leaders that the wealthy need to pay more to fund the welfare schemes for the poor. Since succession is a sensitive issue among business families, it was logical for someone like Mittal, as also others, to take decisions to preserve and safeguard the assets for the future generations.
But, contrary to expectations, the Budget did not throw up surprises, or rather shocks. Obviously, some of the taxes for the rich went up. Still, they were not as steep, and worrisome, as the last year’s ones. As expected, there was criticism. The leader of the opposition said, “Last year she (Chancellor Rachael Reeves) put up taxes by pounds 40 billion, the biggest tax raid in British history. She promised she would not be back for more, she swore it was a one-off. She told everyone that from now on, there would be stability, and she would pay for everything with growth. Today, she has broken every single one of those promises. If she had any decency she should resign.”
Obviously, the reference was to two of the most contentious measures this time. The first was the so-called ‘Mansion Tax,’ which imposes a higher outgo on properties worth beyond a threshold. The other was the lack of measure, to hold the status quo, so that as people graduate towards higher salaries, they will need to pay more. They will not get the extra tax breaks, which is akin to not raising the income brackets for graded taxes. The ‘Mansion Tax’ implies a surcharge of pounds 2,500 on properties above pounds two million, and pounds 7,500 on those worth more than pounds five million.
According to some estimates, the tax increases will raise pounds 700 million next year, and a huge pounds 26 billion in 2029-30. These amounts will be enough to offset the increase in spending. Some of the welfare measures include the removal of the so-called two-child limit for claimants, which may increase borrowings by pounds 11 billion in 2029-30. The Labour regime is behaving like any labour government needs to, which is to push more money for welfare of the poor, and tax the rich to raise the extra money.
However, the Budget was not completely anti-business. Start-up founders were bullish. “This Budget shows that the Government has seriously listened to founders, and tried to make things better to build, and scale a start-up in the UK,” said one response. Don Hllas of a lobby group explained, “Big progress on expanding share options, doubling the scale of enterprise investment, and venture capital trust schemes to back scale-ups, and looking again at how entrepreneurs are incentivised in our tax system will make a material difference to founders building today, and in the future.”
Hallas added that it will be easier for start-ups to attract, retain, and reward talent, especially in an AI-first world, where skills are higher. The impetus for a start-up culture is possibly related to concerns about national productivity. This challenge, according to data, may reduce revenues by pounds 16 billion, and the Budget, say critics, has not done much to address the root problem. Start-ups can address the ‘historic’ levels of under-investment in the country, and boost technologies that are more likely to propel productivity. Similarly, there is an attempt to ‘turbocharge’ retail investment in stocks.
Of course, like the previous Budget, this one was loaded with political overtones. One of the British newspapers commented about the public’s anger and frustration with economic policies. It was these feelings, both latent and open, which pushed Labour into power. But as they continue, and simmer, they may push Labour out. The newspapers added that the 2025 Budget “made things worse, and not simply because of the many tax rises which, do not delude yourself, are never popular. All this will be overstated by a largely hostile press, but it seems inevitable that the 2025 Budget will be remembered for the many taxes Reeves put up, rather than for the bigger one, income tax, that in the end she did not.”
Labour came to power as it claimed to change the country, and put an end to the “sticking-plater politics.” Yet, after this Budget, the chancellor’s position seems fragile, according to her critics. Britain’s public finances are “relatively vulnerable to future shocks.” This may force Reeves to come back with more taxes, including the one she left out this year. She will need to break her tax promises again. More importantly, the chatter within the party is about changing the prime minister, which may cost Reeves. If this happens, the country will possibly see a sixth prime minister since 2019.
The fact remains that like corporate earnings, and stock prices and valuations, the economic destinies of nations are being dictated by the short term. If the stock focus is on quarterly earnings, the nation’s is on immediate crises, and official numbers. Regimes, and policy-makers can prepare multi-year strategies. But the moment a set of new statistics appear, like high inflation, low employment, or low growth figures, the strategies give way to short-term tactics. Hence, the regimes change, as do the faces. The economic architecture of policy-making remains the same.
Politics may explain why the new taxes are locked in so that their main impact arrives around or after the next national elections, which are scheduled in 2029. The tax rises this year, which includes what is being subbed as ‘stealth tax,’ will raise less than pounds 11 billion the year before the elections, but a much higher pounds 23 billion, and more than pounds 26.5 billion, respectively, in the two years after it. This, says a commentator, backloads both the taxes and spending cuts to delay the pain for possible political gains.
In essence, what the chancellor has done is to postpone the decisions in such a manner that she may not have to bear the burden. Who knows what will happen in the next elections? Who knows who will be the next prime minister, and if Reeves will retain her job by the end of the decade? Which is well, as a commentator put it, until another chancellor unlocks them. A new key, new politics.
