Business
Reeves heads into Budget with public finances in challenging state – Streeting
The public finances are in a “challenging state”, a senior Cabinet minister has acknowledged amid speculation Rachel Reeves could hit the wealthy with tax hikes in the Budget.
Health Secretary Wes Streeting admitted there were issues with the economy and said households were also feeling the squeeze.
But he insisted there were “green shoots” of economic recovery “but we’re not out of the woods yet”.
The Mail on Sunday reported Ms Reeves is considering a new mansion tax which would hit owners of properties with an annual charge of 1% of the amount by which its value exceeds £2 million, meaning a £10,000-a-year levy for homes worth £3 million.
The Sun on Sunday suggested she was considering a manifesto-busting 2p hike to income tax.
Mr Streeting said he would not be drawn on “wild speculation about the Budget” ahead of Ms Reeves’ statement next month.
He told GB News: “We’re going to wait for the Chancellor to set out her Budget. People can see the public finances are in a challenging state.
“So is the economy, but also so are family finances, so are business finances, we recognise that, we’ve got to get our economy growing again.”
The UK had the fastest economic growth in the G7 in the first quarter of 2025 but the International Monetary Fund (IMF) forecasts suggest the US will outpace Britain across the year.
Mr Streeting said: “There have been some encouraging signs in terms of interest rates and the UK projected to be the fastest-growing economy in the G7, those are all things that are cause for encouragement.
“But we’re not out of the woods yet. The Chancellor has got a challenging job. She’s got lots of considerations to balance and she will set out her choices at the Budget and not before.”
Mr Streeting told Sky News: “I think there are green shoots of recovery in the NHS, in the economy, in our public services, but there is also so much more to do, and we’ve got to attack those challenges with the level of energy and focus that the scale of the challenge demands.”
Ms Reeves is likely to face raising taxes and cutting spending to fill a black hole in the public finances when she delivers her Budget on November 26.
Economists have suggested she will need to find between £20 billion and £50 billion to meet her goal of balancing day-to-day spending with tax receipts in 2029/30, and at least maintaining her current buffer of around £10 billion against that target.
Ms Reeves has hinted the task will be made more challenging by the Office for Budget Responsibility downgrading its assessment of productivity growth.
The historically small buffer Ms Reeves has left herself against her self-imposed fiscal rules means it can be wiped out by relatively minor variations in Budget forecasts, leaving her scrambling for savings or extra tax revenue.
Former Bank of England governor Lord King was critical of the Chancellor’s “back of a fag packet” approach.
He told Sky News’ Sunday Morning with Trevor Phillips: “You don’t solve that problem by just adding another wealth tax to it.”
He suggested if Ms Reeves wanted to look at the tax system she should appoint a panel of experts to take time to examine the issues and “come up with a coherent view”.
But he said: “That doesn’t seem to happen. What happens is the OBR produces just before the Budget, a number, one number, and then they look round for, you know, ideas, almost written on the back of a fag packet about how you can raise an extra few billion or a few billion there.
“That is not a coherent tax strategy. And you could do a great deal by thinking it through first.”
Interest rates are widely expected to remain at 3.75% as Bank of England policymakers prioritise curbing above-target inflation while also monitoring economic growth, according to expert analysis.
The Bank’s Monetary Policy Committee (MPC) is anticipated to leave borrowing costs unchanged when it announces its latest decision on Thursday, marking its first interest rate setting meeting of the year.
This follows a rate cut delivered before Christmas, which was the fourth such reduction.
At the time, Governor Andrew Bailey noted that the UK had “passed the recent peak in inflation and it has continued to fall”, enabling the MPC to ease borrowing costs. However, he cautioned that any further cuts would be a “closer call”.
Since that decision, official data has revealed that inflation unexpectedly rebounded in December, rising for the first time in five months.
The Consumer Prices Index (CPI) inflation rate reached 3.4% for the month, an increase from 3.2% in November, with factors such as tobacco duties and airfares contributing to the upward pressure on prices.
Economists suggest this inflation uptick is likely to reinforce the MPC’s inclination to keep rates steady this month.
Philip Shaw, an analyst for Investec, stated: “The principal reason to hold off from easing again is that at 3.4% in December, inflation remains well above the 2% target.”
He added: “But with the stance of policy less restrictive than previously, there are greater risks that further easing is unwarranted.”
Shaw also highlighted other data points the MPC would consider, including gross domestic product (GDP), which saw a return to growth of 0.3% in November – a potentially encouraging sign for policymakers.
Matt Swannell, chief economic advisor to the EY ITEM Club, affirmed: “Keeping bank rate unchanged at 3.75% at next week’s meeting looks a near-certainty.”
He noted that while some MPC members who favoured a cut in December still have concerns about persistent wage growth and inflation, recent data has not been compelling enough to prompt back-to-back reductions.
Edward Allenby, senior economic advisor at Oxford Economics, forecasts the next rate cut to occur in April.
He explained: “The MPC will continue to face a delicate balancing act between supporting growth and preventing inflation from becoming entrenched, with forthcoming data on pay settlements likely to play a decisive role in shaping the next policy move.”
The Bank’s policymakers have consistently voiced concerns regarding the pace of wage increases in the UK, which can fuel overall inflation.
India’s budget focuses on infrastructure and defence spending and tax breaks for data-centre investments.
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New Income Tax Act 2025 to come into effect from April 1, key reliefs announced in Budget 2026
New Delhi: Finance Minister Nirmala Sitharaman on Sunday said that the Income Tax Act 2025 will come into effect from April 1, 2026, and the I-T forms have been redesigned such that ordinary citizens can comply without difficulty for ease of living.
The new measures include exemption on insurance interest awards, nil deduction certificates for small taxpayers, and extension of the ITR filing deadline for non-audit cases to August 31.
Individuals with ITR 1 and ITR 2 will continue to file I-T returns till July 31.
“In July 2024, I announced a comprehensive review of the Income Tax Act 1961. This was completed in record time, and the Income Tax Act 2025 will come into effect from April 1, 2026. The forms have been redesigned such that ordinary citizens can comply without difficulty, for) ease of living,” she said while presenting the Budget 2026-27
In a move that directly eases cash-flow pressure on individuals making overseas payments, the Union Budget announced lower tax collection at source across key categories.
“I propose to reduce the TCS rate on the sale of overseas tour programme packages from the current 5 per cent and 20 per cent to 2 per cent without any stipulation of amount. I propose to reduce the TCS rate for pursuing education and for medical purposes from 5 per cent to 2 per cent,” said Sitharaman.
She clarified withholding on services, adding that “supply of manpower services is proposed to be specifically brought within the ambit of payment contractors for the purpose of TDS to avoid ambiguity”.
“Thus, TDS on these services will be at the rate of either 1 per cent or 2 per cent only,” she mentioned during her Budget speech.
The Budget also proposes a tax holiday for foreign cloud companies using data centres in India till 2047.
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