Whether you are left, centrist or right wing, there is a tension in the air around Rachel Reeves’ budget and ultimately, what it means for working families and businesses across the country.
The fact is, this is set to be a miserable budget for everyone, irrespective of your political leanings.
Let’s explore what Rachel Reeves’ is doing with her budget and why it is a recipe for disaster.
Rachel Reeves’ Statement on Upcoming Tax Increases
When a government follows the existing fiscal rules, there is little leeway to borrow more money.
When the Labour party took power, they committed to a massive spending spree including but not limited to:
- Above inflation public sector pay rises,
- Infrastructure spending,
- Renationalising the rail network,
- Investing in the NHS,
- Building more houses.
It does not take a rocket scientist to understand all of this spending requires a pot of money. A pot of money Labour claim they don’t have, because there is a £20+ billion blackhole in public finances.
In other words, and to keep this simple – the government is planning to spend more money than they can take in with the existing tax regime – which I might add, is already the highest tax burden since World War 2.
This was made a big song and dance of in the run up to the election with the media quick to scrutinise how unconservative the Tory party was with such high taxes. Post election, journalists have a very short memory.
The Need to Raise Taxes
Instead of being fiscally responsible and cutting back on unnecessary spending, the Labour Party have doubled down and vowed to increase this tax burden – just not on the ‘working man.’
What Kier Starmer classes as a ‘working man’ is anybody’s guess as he continually moves the goalposts. But should this be a surprise for a politician who refuses to define what a man and woman are, let alone what a working person is.
Regardless, Labour is increasing taxes, but not on income tax and employee national insurance.
The proposal is to instead raise taxes on employers – forcing them to pay more in National Insurance and according to the rumour mill pension contributions.
Why This Is Terrible Economics
In a capitalist society, employers and businesses are responsible for wealth generation. The Gross Domestic Product or GDP the media frequently harps on about is largely provided by employers.
Employers create products, hire staff, and reinvest profits into further growth.
Taxing businesses overall is economically regressive. Instead of having additional funds to research and design new products, create jobs, and invest in business development, these employers are going to focus on meeting their larger tax burden.
Over the course of this Government’s single term (they will absolutely NOT be re-elected), the economy will stagnate and likely hit a severe recession. For businesses, that is four lean years or budgeting to meet an increased tax burden.
For the ‘working man’ this is also appalling. Employers primarily will focus on keeping the business afloat. Expect large scale redundancies. After all, if human capital is costing employers too much money, it is human capital they will cut back on – streamlining their businesses and embracing automation.
The Reeves Budget Has Gone Further
To make Rachel Reeves’ tax increases even worse, she is also tearing up the existing fiscal rules and creating a new way for her government to borrow more money – by leveraging government debt against existing debt.
This is potentially a crisis point waiting to happen.
The sub-par mortgage crisis was caused by leveraging new debt on existing bad debt.
If the broader liabilities Rachel Reeves is banking on to borrow further are remotely problematic, she has created the perfect storm for a complete financial meltdown. Worse than the 2008 Financial Crisis and akin to the Great Recession.
Why? Because this time it is not banks borrowing against sub-prime products, it is an entire country.
The Takeaway for Business Owners – The Reeves Budget
To mitigate risk, you should be examining your existing company structure, identifying how much Rachel Reeves’ budget is going to cost you and where you can offset that cost.
A good business leaser will be able to take the cards they are dealt and make a good hand. Just because the government is hellbent on destroying the larger economy does not mean you cannot prosper as a business.
I will be creating a detailed article explaining how businesses can still operate at current levels in a tax efficient way, so make sure you bookmark and read up on that.