Not only France, but also Great Britain is preparing to face a hot autumn. The French case, in reality, was only amplified by political instability, which forced the resignation of Prime Minister Francois Bayrou. It is not better for London, after the resignation rumors of the Cancellerie of the checkerboard Rachel Reeves, who have chased each other for months.
We therefore enter a hot period, in view of the presentation, on November 26, of the autumn budget, which moves in a corridor too narrow in the face of the tax pressures that the government is again faced. According to an analysis by Goldman Sachs, the numerous revelations of the Welfare Policies Route, the highest yields of government bonds, the changes in US commercial policy and a modest reduction of the reduction of the growth forecast by the budget office will reduce the fiscal maneuvering margin of about 20 billion pounds.
The options in the hands of the Reeves
Trendy reversals on welfare reforms and cuts to payments for heating fuel could generate savings for about 6 billion pounds. The changes in US commercial policy will weigh on the growth projections with an estimated tax impact halfway through the interval between 2.5 and 9.5 billion pounds, quantified by the budget office in the spring. The yields of the GILTs (British government bonds) are slightly higher than the hypotheses formulated in the Spring Declaration, with a potential increase in the interest paid on the debt, in the tax year 2029, of about 3 billion pounds.
It is necessary to activate the tax lever
According to experts from the American Bank, the response to make ends meet can only be found in the tax lever, through the extension of the current tax period to 2030, which applies up to 10 billion pounds. In fact, the United Kingdom has not yet extended the tax threshold to 2030 and has frozen the No Tax Area and the succession tax until April 2028.
The other rich mail is pensions and property taxes. The British government, in fact, also has the possibility of collecting significant additional sums from a modification to pensions and asset taxation, while the gate of the chessboard risks collecting minor sums from changes to taxes on gambling or by measures aimed at reducing tax evasion.
Modest impact on consumption
The increase in taxes will be expected to exert a modest brake on demand, equal to about 0.2% in the coming years, although the impact could probably be limited. This brake to demand increases the probability that the bank of England cuts interest rates, more than estimated by the market. But the impact on monetary policy depends significantly on the implementation by the government of tax measures that reduce demand or that increase inflation. Goldman believes that the government will avoid measures that increase the pressure on prices, given the chancellor’s recent comments, but inflation remains a risk.
We need a more incisive tax consolidation
Tax increases would imply a slightly more marked tax consolidation in the future, since the government is driven to define a plan that respects the tax rules on the basis of slightly less optimistic tendential growth hypotheses. Having said that, the tax trajectory depends significantly on the progress of interest rates, and therefore the impact of the budget on public finances depends in part on its impact on inflation.
