Business
Rachel Reeves should avoid ‘half-baked’ tax fixes in Budget, says IFS
Chancellor Rachel Reeves should avoid “directionless tinkering and half-baked fixes” when trying to boost the government’s tax take in next month’s Budget, a leading think tank has said.
Taxes are widely expected to go up in the Budget, with pressure on the chancellor to raise money in order to meet her self-imposed rules for government finances.
However, the Institute for Fiscal Studies (IFS) – regarded as one of the UK’s most influential economic voices – has said some tax rises could be “especially economically harmful”.
The Treasury said the chancellor had been clear the Budget would strike the right balance between funding public services, while also encouraging growth and investment.
Some analysts have estimated that Reeves will have to raise tens of billions of pounds through either increasing taxes or cutting spending in order to meet her rules which she has described as “non-negotiable”.
The two main rules are:
- Not to borrow to fund day-to-day public spending by the end of this parliament
- To get government debt falling as a share of national income by the end of this parliament
Before the 2024 general election, Labour promised not to increase income tax, National Insurance or VAT for working people.
The IFS said it would be possible for the chancellor to raise tens of billions of pounds a year more in revenue without breaking these manifesto promises, but this would not be straightforward.
Its director Helen Miller told BBC’s Radio 4’s Today programme: “The politics is important and we’re going to hear lots and lots about whether Rachel Reeves can raise the money she wants without breaking one of her manifesto pledges – and that’s worth thinking about – but the economics is important too.”
The IFS said there are “serious constraints” on the next four biggest taxes – corporation tax, council tax, business rates and fuel duties – while “some other tax-raising options would be especially economically harmful”.
The IFS’s comments came in an extract from its annual Green Budget, which analyses the challenges facing the chancellor.
In it, the think tank urged wider reform to the tax system which would align “overall tax rates across different forms of income”, something it says would be “fairer and more growth friendly”.
“There is an opportunity to be bold and take steps towards a system that does less to impede growth and works better for us all,” said Ms Miller who is one of the authors of the report.
It suggests reforms to property tax and capital gains tax as “good places to start”.
Speaking to the Today programme Ms Miller said that stamp duty is an “absolutely awful tax” and said council tax, which is based on 1991 property valuations, is “ludicrously out of date” and “regressive”.
“Make it a tax based on up-to-date property values, make it proportional, and raise revenue from that rather than the current council tax and stamp duty,” she added.
The report goes on to look at a number of trade-offs the government could make in an effort to bring in more income.
It warns against a wealth tax – which it said would face “huge practical challenges”, potentially penalising savings and encouraging wealthier people to leave the country.
“If the chancellor wants to raise more from the better-off, a better approach would be to fix existing wealth-related taxes, including capital gains tax,” it noted.
It says property taxation is “an area in desperate need of reform”. It calls for a reformed council tax based on current property values, rather than the current system that “ludicrously” uses values from 1991.
Extending the current freeze on income tax thresholds, which is due to end in 2028, could raise “a significant amount”. Speaking to the BBC in September, Rachel Reeves did not rule this out.
The IFS noted that restricting income tax relief for pension contributions could potentially raise a large sum – but should be avoided as it would be “unfair and distortionary”.
It said there were “better options” for increasing tax on pensions, such as reforming the tax-free element.
A Treasury spokesperson said: “The chancellor has been clear that at Budget she will strike the right balance between making sure that we have enough money to fund our public services, whilst also ensuring that we can bring growth and investment to businesses.”
Average mortgage rates have risen for the first time month-on-month since February as lenders approach the winter with caution.
Following a series of drops in mortgage interest rates, the picture worsened slightly for new and renewing borrowers over the last month, according to financial information service Moneyfacts.
The average rate for a two, or five, year fixed rate stands at about 5%, much lower than the peak of recent years, but still a stretch for many homeowners.
Analysts suggest imminent, further base rate cuts by the Bank of England appear unlikely, and uncertainty always foreshadows a Budget.
Moneyfacts data shows that mortgage rates only climbed very slightly over the month, by 0.02 percentage points.
That took the rate on an average two-year deal to 4.98%, and to 5.02% for the average five-year mortgage.
More than eight in 10 mortgage customers have fixed-rate deals. The interest rate on this kind of mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it.
Hundreds of thousands of potential first-time buyers also hope to get a place of their own with their first mortgage. All would welcome low mortgage rates.
Rachel Springall, from Moneyfacts, said that the latest situation might well “disappoint” borrowers.
“Volatile swap rates and a cautionary approach among lenders have led to an abrupt halt in consecutive monthly average rate falls,” she said.
Swap rates reflect the market’s view of which direction the Bank of England’s interest rates will go, so lenders use them to set their own rates.
“Lenders have responded cautiously, with some edging rates higher and the overall average ticking up slightly,” said Simon Gammon, managing partner at mortgage advisers Knight Frank Finance.
“This is unlikely to mark the start of a sustained rise in borrowing costs, but rather a prolonged plateau while the outlook becomes clearer.”
The rates during this October are much lower than this month two years ago, when the average rate for a two-year deal was 6.67%.
Some homeowners would have become accustomed to much lower rates during the 2010s, so will now be budgeting for bigger monthly repayments, alongside other financial pressures such as the rising cost of food.
The government has said it will support people with the cost of living. The Budget will be delivered by Chancellor Rachel Reeves in November.
Ms Springall, from Moneyfacts, said that borrowers should consider their own circumstances and seek guidance when required.
“It remains essential borrowers seek independent advice to navigate the mortgage maze and not feel pressured to secure a deal because of the Budget rumour mill,” she said.
On Monday, the Institute for Fiscal Studies, an independent economic think-tank, said that the chancellor should avoid “directionless tinkering and half-baked fixes” when trying to boost the government’s tax take in the Budget.
Business
Trump’s 100% tariff row: China urges US to correct ‘wrong practices’; warns of corresponding measures – The Times of India
Beijing has warned that it will take “corresponding measures” to protect its interests if the US proceeds with plans to impose additional tariffs on Chinese goods.At a regular press briefing on Monday, Chinese foreign ministry spokesperson Lin Jian urged Washington to promptly correct its “wrong practices,” adding that any action should be based on equality, respect, and mutual benefit, as quoted by Reuters.The remarks came as a response to President Donald Trump’s plan to levy an extra 100% tariff on Chinese imports starting November 1, escalating tensions between the world’s two largest economies. Chinese imports to the country are now set to face a total of 130% duty.Earlier in the day, the US president had hinted that the 100% tariff remains in place, though the deadline could change.When asked by reporters whether, “100% tariffs on China on November 1st still the plan?” Trump replied, “Yeah. Right now it is. Let’s see what happens.”The US president imposed the additional tariff on Chinese imports after Beijing restricted exports of rare earth minerals. In a post on social media platform, Trump said, “Based on the fact that China has taken this unprecedented position… the United States of America will impose a Tariff of 100% on China, over and above any Tariff that they are currently paying.”In response, the Chinese commerce ministry accused Washington of fueling trade tensions and said “Wilful threats of high tariffs are not the right way to get along with China.”A spokesperson for the ministry said “China’s position on the trade war is consistent. We do not want it, but we are not afraid of it.”
Share prices tumbled at the Pakistan Stock Exchange (PSX) on Monday as reports of clashes along the Pakistan-Afghanistan border rattled investor confidence.
The market remained volatile throughout the session, with investors also reacting to renewed uncertainty over the International Monetary Fund’s (IMF) inconclusive review talks and the country’s widening trade deficit.
The benchmark KSE-100 Index plunged by 3,932.88 points, or 2.47%, to close at 159,165.31 points.
A total of 466 companies traded their shares at the exchange; among them, 96 posted gains, 358 recorded losses, and 12 remained unchanged.
Market dealers said that institutional and major investors continued aggressive selling amid heightened uncertainty in both domestic and regional markets.
According to analysts, persistent concerns about economic stability coupled with escalating border tensions between Pakistan and Afghanistan further dampened market sentiment.
“Selling pressure intensified as investors reacted to speculative reports and geopolitical uncertainty,” said a Karachi-based stock analyst. “Confidence remains fragile, with many investors moving to safer assets.”
On Friday, the KSE-100 Index had fallen 735.94 points, or 0.45%, to close at 164,530.81 points. The index touched an intraday high of 166,729.97 points and a low of 164,306.77 points.
During the outgoing week, the KSE-100 shed 3.5% week-on-week, closing at 163,098 points, with trading volumes falling 7.6% to 1.6 billion shares.
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