Rachel's last shambolic budget - my analysis

My money was on Rachel pulling a sickie but sadly she turned up to deliver her budget. True to form she put  party before country.  

Maybe the dog ate her "good budget".

Bizarrely pretty much everything she said was leaked by the OBR before the Budget. Total chaos reflective of pretty much everything Labour does.

My prayers to the Gods of Calamity must have been answered by the OBR leak. Total comedy ! 

With leaks of budgets content over  the last few months we pretty much knew what was in the budget - unlike Rachel.  I suspect today was a complete surprise for her to find out what she was implementing.

The constant  budget "leaks" have been going on for months, possibly hundreds of hypothetical budgets have been leaked  - what little hope business owners and the UK economy had, has been driven out of us through fear of what she will do.  The UK has stagnated through the rumour mill.

Former Bank of England chief economist Andy Haldane commented that "[GDP growth has been harmed as a result of the leaks] without any shadow of a doubt".

Westminster's roofs may be leaking but so is the whole of the Westminster machinery.  Just 24 hours before the budget the OBR growth forecast was leaked showing ZERO growth during Labour's remaining term in office (whatever that may be).   The OBR leak of the budget before the budget was unbelievable !

I'm not sure the economy is firing on all cylinders - I suspect the economy is now an EV and Rachel forgot to plug it in to charge it up. The problem with EVs is it's going to take forever to charge back up whilst our competitors motor on.

So let's wind the clock back to October 2024 where Rachel promised:

“draw a line under the chaos and instability of the last few years”.

“We’ve drawn under that now,” “There’s been a reset that means our public finances are now on a firm footing and the trajectory of public spending is much more honest.

“So we’re never going to have to do a Budget like this again. This was a once in a Parliament reset so that we start on the right foot.”

I suppose it was obvious even back then that this was b*ollox. She raised taxes by £40Bn and committed to £70Bn in increased spend.  The problem is the £70Bn is every year whilst there's absolutely zero guarantee that £40Bn will come in year-after-year. Even if it did that's a £30Bn black-hole each year.....

We dont have to look far back to see what the OBR projections 7 months ago in March 25 were way off the mark and we have sunk deeper into the sh*t.

So here we are 13 months later after her first budget and the promise not to do another tax raid is another broken promise. Let's start with the first lie "fully costed plan".

 Our already bloated benefits bill has just been boosted by a further of £15Bn of SPEND. 

I will remind you Rachel that before you came to power you said "‘Labour are not the party of people on benefits… We’re not the party to represent those who are out of work.".  The optics suggest you are.

The trouble with benefits is once you start paying them, it's very difficult to turn off the tap - particularly for Labour where back-benchers view benefits payments like crack cocaine.  If we turn them off then the voters stop voting for me.

Measurement drives behaviour.  If we incentivise people to be sick then we get more "sick" people.

I was surprised to find there are 860,000 motorbility cars in the UK.  It accounts for 1 in 5 of every new cars sold. Apparently 1 in 3 cars in Northern Ireland.  

In the 9 month since Labour came to power the number of "Benefits cars" went up  nearly 6%.  The government has at least said Mercedes cannot be bought on Motorbility (starting price of at least £26,000).

So let's assume a median car price of £22,000 then this is a hidden expenditure of £18.9 BILLION. These are not capital items since these are LEASED cars.

I cant afford a new car.  Maybe we need to bring back the Invacar as the only choice of benefits car.

Unsurprisingly parents have abused this system and gotten a mobility car because their child has ADHD and yet expect a taxi to pick up the child and take little Johnny to/from school.  If you have a FREE benefits car then drive your kid to school or lose the benefits to pay for the car.

If I was given a company car I would need to pay tax on this yet if you're given a FREE benefits car then there's no tax to pay - yet more double standards.

What message does giving yet more money and new cars to benefit claimants send to those hard working people who actually contribute to the economy?

This government prioritises welfare spending over productive investment. It's almost as if they want everyone to be on benefits, no-one works and we are all dependent upon them.  I can't believe that's true but increasingly I'm finding it hard to disprove.

So benefits payments (which are often tax free) will increase with inflation whilst the tax bands for those that actually work will be frozen until 2030.    Wonderful news for non workers.  Terrible news for real workers. Fiscal drag will make you poorer.  Inflation erodes your income  with probability of paying more tax and increased liklihood of paying 40%+ tax. So the lazy are rewarded but the workers are punished.  Totally Two Tier policies.

Benefits needs to be in-line with tax raised, not tax increased in-line with benefits.

In October 2024 Rachel promised "I am keeping every single promise on tax that I made in our manifesto," and announced that she would not continue the freeze on income tax thresholds beyond the existing April 2028 expiration date. She had previously described freezing thresholds as a "stealth tax" that would "hurt working people" amount to a breach of Labour's manifesto commitment not to raise taxes on working people.   What a difference a year makes - so much for morals. 

What about the inflation busting pay awards to  public sector workers?  4.4% increase compared to 3% in the private sector.  In the past public sector workers were poorly paid but had good pensions.  Now they are significantly better paid than their privately employed cousins and additionally have gold plated inflation linked pensions. 

Comparing the "overall package" of public sector workers to privately employed workers and public sector workers are paid 30 - 80% more. And with inflation busting pay rises the gap is widening. When factoring in public sector final salary pensions which are inflation linked then over the person's lifetime the real difference is probably closer to 120% more.

Who is paying for this gold plated lifestyle?  The poor privately employed workers. 

Government doesnt produce anything (except maybe waste and bureaucracy).  Government is not a product we can export.  Government is not a product other countries want to buy.  Government is an overhead - it doesnt add value to the economy.   Yet we keep throwing more money into it....

So let's start with the first punch which Rachel has aimed straight at businesses. 

The minimum wage will increase by an inflation busting 4.1% to £12.71.  

This was actually announced yesterday before the budget.  Presumably the timing of this is so Rachel can say this disastrous move for business was not part of her budget.  Mere symantics.

Businesses are still reeling from the 6.7% minimum wage increase in the last budget to £12.12 and huge National Insurance tax increase which has resulted in 276,000 jobs being lost and 109,000 in the hospitality sector. All told the last punch she aimed at business increased their labour costs by 10% in one foul swoop.

Rachel has tried to position this latest as "just 50p" (actually 59p) - it's the knock on costs.  The headline forced pay rise is £1,227 per year, per worker + plus £312 jobs tax paid directly to Rachel and a further £62.40 employer mandatory pension contributions.

So this isnt a 4.1% increase in employer costs - it's a 5.4% increase - way above the 3.8% inflation number.

To make matters worse, compound interest escalates the cost to business. Last year it was an inflation busting 10% increase in costs and that 10% is being multiplied by another inflation busting 5.4% increase giving 16% increase so far.  Assuming this continues through Labour's terms then the employer wage bill will have increased by 36% whilst inflation will have only increased by 21%.  This is business killer stuff.  I suppose the only positive news is this will force companies to increase productivity through things like AI in order to make more people redundant so that companies can reduce their costs.

Of course this move has cost the government nothing. No taxes to spend. No treasury budgets impacted.  It's employers who are forced to pick up with bill. In fact Rachel gets more tax revenue by stealth through employer national insurance and employee national insurance and the frozen tax allowance bands.

Some have argued that the tax bands should be raised instead to give workers more money.  There is however a huge difference.  To do that would reduce tax take for the Chancellor whilst raising minimum wage increases tax take for the Chancellor!

This sleight of hand for the 2.4M full-time minimum wage workers results in £312 Jobs tax, £245.40 personal tax and £98.16 employee national insurance so £655.56 in taxes raising  nearly £1.6 BILLION in additional taxes for Rachel.  However it doesnt stop there.  More skilled workers who were above minimum wage may well now be below minimum wage or feel they need a pay rise.  This ripples upwards.  With 25.6 million full time workers the true impact is this may raise an addition £10 BILLION in taxes and of course it's business picking up the tab and therefore factory gate prices need to rise in order to absorb these costs - in other words this will drive inflation - inflation which is stubbornly high in the UK.  

The UK inflation is 3.8% whilst France for example is just 1.2%.  There is therefore a  limit on  how much our businesses can increase prices unless the pound crashes in response making our products cheaper for export.

Assuming business swallow this - a big if - it will be inflationary.  Supermarkets will be first to pass this on with increased food price inflation.  So much for Labour helping out hard pressed families.   Pubs - if they are still in business - will pass this on with higher prices.  Unless government employers gets an exemption - it will increase care costs, increased council tax, increase costs across the board. 

Of course Rachel has frozen the 0% tax band at £12,570 - yet more fiscal drag.  This impacts all workers, and pensioners. To illustrate this lets take someone on the median salary of £39,000 per year and compare to a scenario where the threshold increased in line with inflation.

 Let's assume inflation is stubborn at 4% which given the steps taken looks very likely. Lets assume our worker is in the private sector and get a 3% pay increase per year.  So in 2025 the proportion of tax paid is 19% of gross salary but by 2030 this will have increased to 22.2%.  This translates into an additional £933 tax paid by 2030 and total excess tax of £3,161 paid over the term.  The tax man is the winner. The person will be materially poorer.  

Assuming the employer national insurance threshold is frozen at £5,000 then employers also have to foot the bill of pay rises and additionally increased employer national insurance contributions.  In 2025 the jobs tax contribution would be £5,100 but would have increased by  18% by 2030 to £6,031 per year.

Let's take a look at Wetherspoons.  It employs 43,000 people.  This hike in national insurance will cost them a staggering £52.7 MILLION in a wage bill increased.  £1.58M in increased pension contributions and a staggering £7.9 MILLION increase in jobs tax paid to Rachel.

The current financial report for Wetherspoons shows pre tax profits of £81.4 million on revenues of £2.13 billion.  So this increase in minimum wage will increase their direct costs by £62.2 MILLION.  So will Tim decide to swallow this and live with 75% of profits being wiped out or will he increase the price of beer which will drive inflation? I think I know the answer. Tim will do his bit for inflation.....

Of course many non Wetherspoons pubs will close.

Of course many businesses may decide enough-is-enough and sack some people or more severely  cease trading. Unemployment will rise.

Read my blog post on minimum wage and falling productivity.

The much speculated mansion tax for homes worth over £2M has been adopted. It may pay for some to appeal their bands which are based on the property value in April 1st 1991.     

What is not clear is whether farms fall into the definition of a "mansion".  It's pretty easy for a farm to be worth £5M.  I guess it depends upon the wording - it is the actual building which needs to be worth £2M/£5M  or is it the overall estate? If farms do fall foul of this I expect wide spread outrage. Not all farms are classified as "non residential".

In order to get your council tax band reassessed you basically need to take the price of your house at a known point in time after 1991 and work backwards.  One option is use the Bank of England inflation calculator another is the Nationwide house price index.  I did this for my house and there's quite a wide spread - in my case a range of £50k.  Unfortunately neither allowed me reduce my council tax band to an E. Although my neighbours are in band E and D, they are not comparable houses. 

The exact details of what this "levy" will be needs clarification.  If it's a genuine levy then I suspect it is illegal. If you happen to have a £2M+ home - feel free to contact me - I fancy a laugh at bogging this one down in the courts !

Rachel has also targeted pensions with the erosion of salary sacrifice towards pensions.  If you work for the government then you get a gold plated pension where tax payers are paying somewhere around 30% of your salary  each year as employer contributions towards your pension pot (or at least hypothetically since the government does not ring fence the pension contributions - they are a Ponzi scheme and pay government pensions out of the current account [money which we dont have and Rachel has to borrow]).  Whereas the average working person has a private pension where employer contributions are about 3% of salary. These hard working people have to suffer poverty in retirement yet keep bloated civil servants with their gold plated pensions.  I struggle to see how Labour can claim to be the party of working people.... 

In news this week that  Lakshmi Mittal is quitting the UK as a result of Rachel's budget last year where she changed Inheritance Tax to be on your world-wide assets.  I fully sympathise with him.  Most of his assets were not in the UK.  Had Rachel not changed that then she would have continued to receive circa £10M in tax from him each year.  Now she is getting nothing.   Now the lefties will be screaming good riddance.  Well that means at least 9,500 median workers are going to have to pay 10% more tax to make up for the lost tax.  Sorry "working people" the burden will fall on you.

If Bernie Ecclestone decides to leave then there's a real problem.  In a typical year he pays £652 MILLION in tax so  620,000 workers will have to work 10% harder and pay 10% more tax to make up for this.

Rachel positioned the budget as one which tackled the cost of living facing everyone.  The OBR’s verdict is clear: Reeves has made the cost of living worse.....

The one thing she did do was remove the ECO levy from our energy bills saving £150 per year. Too little too late. Since coming to power, Red Milibrain has increased our energy bills by £281.  The increase in the price cap of 0.2% in January will increase them by £4.  So we are still circa £150 per year worse off since Labour came to power. Now if she had removed the hidden green levy from the bills then that would be something I would praise her for.

Labour is the politics of envy.  It is the politics of dragging everyone down to their level until we all live in the ghetto.....People have a choice and I fully respect the riches decision to leave the UK when they have a choice.  Sadly for most of us we dont have lifeboat to escape the sinking Titanic of the UK economy.

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The day after Shambles Day, Rachel was on the TV doing an interview and confidently stated this was a budget for growth.  I am struggling to see what growth was in the budget other than growth in the size of the welfare state.

For example

1/  She has unfrozen fuel duty so the fuel cost to logistics, haulers, farmers etc will go up. This will affect virtually every business and be inflationary for the wider economy.

2/ She has increased alcohol duty by RPI so our struggling hospitality sector will pay more tax for alcohol

3/ She has reduced tax relief for entrepreneurs selling their companies

4/ She has increased input costs for labour

5/ She has made it far more unattractive to hire inexperienced under 21 staff by dramatically increasing the minimum wage for under 21s.

6/ The token gesture of removing the "£150" ECO tax on energy bills only applies to consumers and not businesses.

Am I being stupid here?

A business friendly growth move would have been something like remove stamp duty for the stock market.   Maybe allow companies in their first 5 years of trading to avoid corporation tax provided profits were kept within the business and not paid out as dividends and that the profits were reinvested.

Maybe you saw something I didn't - feel free to comment.