Reeves’ £26b tax hike calms markets after chaotic rollout.

Chancellor of the Exchequer Rachel Reeves announced £26 billion (US$34 billion or RM140.5 billion) of tax increases in a budget that was meant to convey stability but left investors reeling when most of the key measures were accidentally released early.

The policies in the budget, in which Reeves more than doubled her key fiscal buffer to £22 billion, were posted online by the Office for Budget Responsibility about an hour before she rose to speak in the House of Commons. The OBR apologised and launched an investigation into the error, which Reeves described as “deeply disappointing”.

Still, the budget provided little relief for those expecting Prime Minister Keir Starmer’s Labour government to make the hard choices to control costs and break the UK out of its cycle of stagnation. In a disappointment for investors, tax increases were largely backloaded with a freeze on income-tax thresholds for three more years, dragging an estimated 1.7 million more people into higher rates.

UK markets fluctuated after the early release of the OBR report, with gilts swinging between gains and losses. The 10-year yield was one basis point lower at 4.47% in London. The pound was trading higher.

“The budget does little to seriously tackle sluggish growth, low confidence or a bloated public sector financed by a distortive tax system,” said Kallum Pickering, chief economist for Peel Hunt.

One of the most significant metrics revealed in the OBR analysis, which was then confirmed by Reeves in Parliament, was the figure for the headroom she has secured against the fiscal rules, the most achieved in a British spending plan since March 2022 and well in excess of the median estimate of £15 billion from the banks.

Among other things, she shelved plans to increase the basic rate of income tax, a move that would’ve raised much more money, but breached Starmer’s campaign promises not to raise broad-based taxes. The prime minister was forced to brush back reports of plots against his leadership as opposition to tax increase circulates.

The expanded fiscal buffer was achieved by raising taxes by £26.1 billion. A large chunk of that came from a three-year freeze on income-tax thresholds. At last year’s budget, Reeves had decided against that course of action, saying that extending the threshold freeze would “hurt working people”.

Source: Theedgemalaysia