Budget market reaction ‘very different’ from Liz Truss turmoil, minister insists
The UK is in a “very different world” compared with the turmoil which followed Liz Truss’s economic plans, a minister has said as the government seeks to quell post-budget market jitters.
The scale of extra borrowing in Rachel Reeves’s budget – around £32bn a year on average – saw yields on government bonds increase as the market responded to the chancellor’s plans. The value of the pound has also fallen against the dollar after Labour’s first budget in more than 14 years.
But Darren Jones, Reeves’s deputy at the Treasury, told Sky News that “markets always respond to budgets in the normal way”. “I think we’ve all got PTSD from Liz Truss,” he added, according to the PA news agency.
The Treasury minister compared Truss’s decision to sack the Treasury’s chief official and snub an analysis of her spending by fiscal watchdog the Office for Budget Responsibility (OBR), with Labour’s plans.
He added:
Completely different in contrast to now: We’ve got verified reports from the independent Office for Budget Responsibility that say we meet our fiscal rules earlier than had been planned originally, 2027-2028, that those tough fiscal rules means there is a fiscal consolidation and that strong approach to public spending. We’re in a very, very different world.”
He conceded that the headline budget tax rise in national insurance contributions (NICs) for employers would impact “working people”, after a similar admission by Reeves.
The £25.7bn change to employers’ NICs is expected to raise about £16.1bn by 2029/30 as firms curb wage rises, cut hours and reduce profits – while public sector employers get compensation in their budgets for the change.
Asked by Sky News if it would impact workers, Jones said:
Yes, but the question in the manifesto, the promise in the manifesto, was not to increase the rate of tax that employees pay in their payslip.
It says that we make a promise to working people, that’s people who go to work and get a payslip, that we will not increase income tax or national insurance.”
The Resolution Foundation economic thinktank has called the increase a “tax on working people”, and said it will show up in their payslips in slower growth.
Jones also admitted to broadcasters that GPs and care homes will have to pay the NICs increase. But he told BBC Breakfast some GPs “may end up in a better position than they were in before” because of extra investment across the NHS.
More on that in a moment, but first, here is an update of the latest developments in UK politics:
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Rachel Reeves has been warned an extra £9bn of tax rises may be required to avoid a fresh austerity drive in key public services as her record tax-raising budget sent tremors through the financial markets. Threatening to undermine the chancellor’s claim that her budget would restore economic stability to Britain, government borrowing costs rose sharply in the City on Thursday as traders turned on Reeves’s tax and spending measures.
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Reform UK is facing a schism over its approach to Tommy Robinson’s supporters, after two high-profile party figures said it was wrong to disavow those who went to a weekend rally backing the far-right leader.
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The Independent Schools Council (ISC) has said it will launch legal action against the government’s decision to impose VAT on independent school fees. The council, which represents more than 1,400 private schools in the UK and abroad, reached its decision after a board meeting held on Thursday.
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More than half of people expect the number of those living in poverty to have risen by the end of the government’s current term, according to a study. Four in 10 Labour voters expect this to be the case by 2029, the research from King’s College London (KCL) and the Fairness Foundation suggested.
Key events
EU citizen caught up in Home Office residency backlog forcibly removed from UK
Lisa O’Carroll
An EU citizen caught up in a Home Office backlog of applications for post-Brexit residency status has been forcibly removed from the UK.
Costa Koushiappis, 39, a Greek Cypriot, was put onboard a plane to Amsterdam with only three days’ notice. Speaking as he was being escorted on to the aircraft in Edinburgh shortly before 9am on Friday, he said he could not understand his unfolding nightmare.
“I am here with the Border Force. They have all my documents. I can’t talk about how I feel because if I do will have a breakdown,” Koushiappis added.
When it became clear late on Thursday night that his lawyer was unable to get the Home Office to reverse the decision by Border Force, his friends came to his flat to help him pack up.
His employer at Two Wheels motorbike franchise, Stuart West-Gray, described what had happened as a “disgrace”.
He said:
I spoke to him this morning. He said the Border Force officials who had escorted him were very good to him and told him he had conducted himself very well, had adhered to the bail conditions and they didn’t have to come look for him this morning.
But why give someone three days to pack up their life? You would think they would at least give them 28 days so he could mount a legal case.
When he was in the shop last night as we were closing, he said ‘I’ve got to go round and say goodbye to everyone’. He was in tears as he went round the shop floor. It was absolutely heartbreaking.”
Koushiappis arrived in the UK in 2017, before Brexit, and – after an absence due to poor health and then Covid lockdowns – did not return until 2021.
His subsequent application for pre-settled status was rejected by the Home Office on 28 October 2022 but then asked for a closer look at his case, as the rules allow.
Days later, on 2 November, he applied for the “administrative review” but was told as recently as 25 October the decision could take two years to be processed such was the backlog of cases.
Meanwhile, a care group has called on the government to exempt social care providers from the tax rise or ringfence funding to cover it.
Independent Care Group (ICG) chair Mike Padgham said:
The government has to do something and it has to do it quickly, as I am already hearing from providers that this might be the last straw for some of them.”
Geoff Butcher, of the Blackadder Corporation, which owns a number of care homes in England, said he believes the rise in national insurance contributions (NICs) for employers could lead to some homes having to shut.
According to the PA news agency, he told the Today programme:
We will certainly not be taking on additional staff. We will be having to cut back on improvement.
So this morning I was supposed to be going to a home to look at investing in a small extension and a new passenger lift. That almost certainly will have to go.
And I know that colleagues in other services are looking at cutting back on staffing, and I think it will exacerbate the speed of closure of homes and the handing back of contracts by other services, including domiciliary [home] care.”
He said the £600m funding to local authorities for both adult and children’s social care announced in the budget “if it came through” would equate to about only £350 for each employee in the social care sector.
He said:
Staff costs are 80% of our total cost. We’ve got nowhere to go on this.”
Butcher said he finds it “extraordinary that year after year, governments find billions to support the likes of Ukraine, but we don’t find the money to support our very vulnerable people – I think it’s a huge reflection on our society”.
Care England, which represents providers in adult social care, said the national insurance rise, combined with wage rises, will leave the sector with “an additional circa £2.4bn funding hole to plug”.
The Independent Care Group said the new grant funding is likely to be “wiped off instantly” by both.
GP surgeries will have to consider making staff redundant if the rise in employer national insurance contributions announced in the budget is not covered, the government has been told, reports the PA news agency.
The chancellor, Rachel Reeves, announced the tax rise on Wednesday, as organisations representing care homes and hospices voiced concerns about the sector’s ability to plug the funding gap. There have also been concerns about the impact on GP surgeries, with one practice manager suggesting it could cost his practice about £40,000 a year.
Dr Jess Harvey, a GP based in Shropshire, told BBC Radio 4’s Today programme that practices will “really struggle”. She said:
During these contract negotiations for our new contract, unless we’re getting given suitable remuneration to cover this national insurance inflation, then we’re going to really struggle.
There are going to be practices to start to make redundancies. There are practices that were already considering redundancies because it’s so hard to manage financially, and if we don’t get enough money to continue to run these practices, then we’re not going to be able to provide the service that people want.”
When asked if GP wages should “take a hit” to cover costs, Harvey said:
How general practice is funded, this isn’t about GPs, this isn’t about my wage. I don’t want an increase in my wage. What I want to be able to do is to is to provide the same service that I’m providing now, if not better, in the future.”
Harvey also said the amount of money surgeries are getting has not changed in six years, amid a rise in staffing costs. She added:
Yes, we are classed as private businesses, but the money that we get to run that business isn’t generated by profit, as I’m sure you can imagine, in terms of we aren’t charging people for service.
The government give us a specific amount to run our general practice, which is based on the number of patients we have. The amount of money that we are getting at the moment is the same as we were getting in 2018.”
Paul Stanley, a practice manager at Gas House Lane surgery in Morpeth, Northumberland, told the Today programme the changes could cost his surgery about £40,000 a year. He said:
It is a huge amount of money and our staff costs do equate to, I would probably say, about 65-70% of all of the costs of the practice.
I think what we’re looking at is an unfunded increase in our staffing costs, which may ultimately impact on our resources and our staffing levels.”
Helen Morgan, health and social care spokesperson for the Liberal Democrats, said:
We are urging the chancellor to change course and exempt GPs from a tax hike.
This new government must not make the same mistakes as the Conservatives, fixing the GP crisis is crucial for saving the NHS.
If people can be checked quicker, fewer will end up in hospital for treatment. That’s better for patients, better for the NHS and better for taxpayers.”
Helena Horton
After this week’s budget, the usually mild-mannered National Farmers’ Union president, Tom Bradshaw, blasted:
Before the election Keir Starmer promised to establish a new relationship with farming and the countryside. Well, he’s certainly done that.”
This highly unusual intervention from the body, which typically favours being “in the room” with prime ministers rather than publicly attacking them, reflected a strength of feeling in the agricultural world not felt since the unpopular Brexit trade deals.
The main issue that is infuriating the farming community is the chancellor’s change to agricultural property relief (APR). Steve Reed, the environment secretary, had promised that Labour had no intention of fiddling with this tax loophole designed to protect the family farm.
On Wednesday Rachel Reeves announced that, from April 2026, the first £1m of the value of agricultural properties will be exempt from inheritance tax (IHT), but above that threshold the combined relief available from APR and business property relief (BPR) will drop to 50% of the standard 40% rate of IHT. This means that inheritance tax of 20% will effectively apply on the full value of farms and rural estates above £1m.
In reference to Reed’s broken vow, Bradshaw said:
When you look farmers in the eye and make them a promise, keep it.”
You can read Helena’s full explainer on this here:
Rowena Mason
Reform UK is facing a schism over its approach to Tommy Robinson’s supporters, after two high-profile party figures said it was wrong to disavow those who went to a weekend rally backing the far-right leader.
Richard Tice, the deputy leader of Reform, said earlier this week the party “want nothing to do with” Robinson and “all of that lot”. Nigel Farage, the Reform leader, also said after the summer riots that he had never had anything to do with “the Tommy Robinsons and those who genuinely do stir up hatred”.
But two high-profile 2024 candidates, Howard Cox and Ben Habib, took a different position, saying those attending Saturday’s rally were some of Reform’s own people.
Thousands of supporters of Robinson, whose real name is Stephen Yaxley-Lennon, protested in central London on Saturday after he was remanded into custody by police. The far-right activist was jailed on Monday for 18 months for contempt of court for repeating false allegations against a Syrian refugee, in breach of an injunction.
After the sentencing, Cox, who stood as Reform’s London mayoral candidate and as a parliamentary candidate in Dover and Deal, said Robinson should not be in jail and Tice had been wrong to distance the party from those who attended the rally.
You can read the full report by Rowena Mason and Peter Walker here:
Reeves told she will have to raise further £9bn to avoid UK public service cuts
Rachel Reeves has been warned an extra £9bn of tax rises may be required to avoid a fresh austerity drive in key public services as her record tax-raising budget sent tremors through the financial markets.
Threatening to undermine the chancellor’s claim that her budget would restore economic stability to Britain, government borrowing costs rose sharply in the City on Thursday as traders turned on Reeves’s tax and spending measures.
On a day of wider losses in global markets, the negative reaction came despite the International Monetary Fund lending its backing to the first Labour budget in 14 years as the government sought to defend its plans.
The yield – in effect the interest rate – on benchmark 10-year government bonds jumped to the highest level this year, rising by more than 0.15 percentage points to above 4.5% on Thursday, before falling back slightly by the evening. The higher the yield, the more the government has to pay to borrow money.
City traders warned the higher short-term borrowing levels set out in the budget threatened to derail the Bank of England from pushing ahead with a deep round of interest rate cuts. The pound also fell against the US dollar to its lowest for two months.
Some analysts sought to draw comparisons with Liz Truss’s mini budget, when financial markets were thrown into a tailspin, although they cautioned that the gyrations in the City were far less substantial this time. Others said there were dangers in holding the budget in proximity to a closely-fought US election, amid a febrile backdrop for a historic tax and spending package.
Jonas Goltermann, deputy chief markets economist at the consultancy Capital Economics, said the fallout from Reeves’s budget was “still a very long way from the 2022 ‘mini-budget’ debacle”, but that the similarities could trigger alarm bells in Westminster.
“A meltdown of similar proportions remains unlikely, but plainly investors are nervous about the fiscal outlook in the UK (and elsewhere),” he said.
You can read the full piece by Richard Partington and Jessica Elgot here:
Matthew Weaver
More on the comments by the chief secretary to the Treasury, Darren Jones.
Jones said:
Under Liz Truss they sacked the permanent secretary [to the Treasury], they ignored the independent Office Budget Responsibility, they announced £45bn of unfunded tax cuts and said they were only just getting started. And then the market went mad, and we all know what happened then.”
Asked about the market response to the budget, he said:
There’s a lot of new information about the economy and the nation’s finances presented to parliament, and it’s normal for markets to respond.”
But he added:
I understand why you asked the question, because everybody suffered as a consequence of the way the Conservatives managed the economy.”
Jones also defended the government paying £950 a day to a new value for money chair David Goldstone.
Asked by LBC about Goldstone’s salary as the head of the Office for Value for Money (OVFM), Jones said:
The rate of return for the improvements that we will make from looking at these areas of spending will be far, far greater.”
He added:
It is right that we pay people for their time. We can’t expect people to work for free. That is an important way in which we do things in this country. Actually, the day rate for David is, on a benchmark basis, competitive.”
Goldstone is also a non-executive director of the Submarine Delivery Agency and HS2 Ltd, and was previously chief executive of parliament’s Restoration and Renewal Delivery Authority, as well as working as chief operating officer at the Ministry of Defence.
He oversaw the government’s £9.3bn investment for the 2012 Olympics, including the Olympic Park venues and infrastructure.
Budget market reaction ‘very different’ from Liz Truss turmoil, minister insists
The UK is in a “very different world” compared with the turmoil which followed Liz Truss’s economic plans, a minister has said as the government seeks to quell post-budget market jitters.
The scale of extra borrowing in Rachel Reeves’s budget – around £32bn a year on average – saw yields on government bonds increase as the market responded to the chancellor’s plans. The value of the pound has also fallen against the dollar after Labour’s first budget in more than 14 years.
But Darren Jones, Reeves’s deputy at the Treasury, told Sky News that “markets always respond to budgets in the normal way”. “I think we’ve all got PTSD from Liz Truss,” he added, according to the PA news agency.
The Treasury minister compared Truss’s decision to sack the Treasury’s chief official and snub an analysis of her spending by fiscal watchdog the Office for Budget Responsibility (OBR), with Labour’s plans.
He added:
Completely different in contrast to now: We’ve got verified reports from the independent Office for Budget Responsibility that say we meet our fiscal rules earlier than had been planned originally, 2027-2028, that those tough fiscal rules means there is a fiscal consolidation and that strong approach to public spending. We’re in a very, very different world.”
He conceded that the headline budget tax rise in national insurance contributions (NICs) for employers would impact “working people”, after a similar admission by Reeves.
The £25.7bn change to employers’ NICs is expected to raise about £16.1bn by 2029/30 as firms curb wage rises, cut hours and reduce profits – while public sector employers get compensation in their budgets for the change.
Asked by Sky News if it would impact workers, Jones said:
Yes, but the question in the manifesto, the promise in the manifesto, was not to increase the rate of tax that employees pay in their payslip.
It says that we make a promise to working people, that’s people who go to work and get a payslip, that we will not increase income tax or national insurance.”
The Resolution Foundation economic thinktank has called the increase a “tax on working people”, and said it will show up in their payslips in slower growth.
Jones also admitted to broadcasters that GPs and care homes will have to pay the NICs increase. But he told BBC Breakfast some GPs “may end up in a better position than they were in before” because of extra investment across the NHS.
More on that in a moment, but first, here is an update of the latest developments in UK politics:
-
Rachel Reeves has been warned an extra £9bn of tax rises may be required to avoid a fresh austerity drive in key public services as her record tax-raising budget sent tremors through the financial markets. Threatening to undermine the chancellor’s claim that her budget would restore economic stability to Britain, government borrowing costs rose sharply in the City on Thursday as traders turned on Reeves’s tax and spending measures.
-
Reform UK is facing a schism over its approach to Tommy Robinson’s supporters, after two high-profile party figures said it was wrong to disavow those who went to a weekend rally backing the far-right leader.
-
The Independent Schools Council (ISC) has said it will launch legal action against the government’s decision to impose VAT on independent school fees. The council, which represents more than 1,400 private schools in the UK and abroad, reached its decision after a board meeting held on Thursday.
-
More than half of people expect the number of those living in poverty to have risen by the end of the government’s current term, according to a study. Four in 10 Labour voters expect this to be the case by 2029, the research from King’s College London (KCL) and the Fairness Foundation suggested.