Rachel's Spring statment- what are my thoughts?
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| Whats the difference between tax evasion and avoidance? |
Introduction/main thoughts:
We saw Reeves deliver her spring statement on Wednesday. He strategy to balance the books by reducing public spending aims to address the deficit but is straining small businesses and limiting market growth. Whilst she boasts about rate cuts offering some relief, her focusing on short-term fixes might sustain inflation and lower productivity, adding to an interest burden of around £104 billion. A more balanced approach could include a 2 percentage point corporate tax cut(potential of +150,000 jobs annually) and a £1.5 billion investment in infrastructure and R&D to boost productivity by 3 to 5% over time. Tough one, but she's doing a decent job.
Main Policies:
Welfare: Projected to result in net savings of £3.4bn by 2029-30 but will push 250,000 more people, including 50,000 children, into relative poverty.
Spending Cuts: Day-to-day departmental spending will be reduced by £3.6bn by 2029-30.
Defence Spending: Set to rise by £6.4bn by 2027, funded by reductions in the overseas aid budget, including a £2.2bn increase in 2025-26.
Planning Reforms: Aimed at increasing housebuilding to 305,000 homes per year by 2029, up from 269,500 in 2022-23.
Welfare: Projected to result in net savings of £3.4bn by 2029-30 but will push 250,000 more people, including 50,000 children, into relative poverty.
Spending Cuts: Day-to-day departmental spending will be reduced by £3.6bn by 2029-30.
Defence Spending: Set to rise by £6.4bn by 2027, funded by reductions in the overseas aid budget, including a £2.2bn increase in 2025-26.
Planning Reforms: Aimed at increasing housebuilding to 305,000 homes per year by 2029, up from 269,500 in 2022-23.
Other Policies:
Defence Spending: Set to rise by £6.4bn by 2027, funded by reductions in the overseas aid budget, including a £2.2bn increase in 2025-26.
Capital Spending Increase: £2bn added annually compared to the previous autumn plans.
Tax Compliance Measures: Expected to generate £2.2bn by 2029-30.
No changes to taxes or relaxation of fiscal rules to permit additional borrowing, but we'll see if she will stick to this in the Autumn budget
I shall start of with welfare. The problem with these are that the working age benefits, year on year are increasing; government have decreased the power of trade unions and increased the pension claiming age, yet we can still see how much of a "burden" this is through the pie chart below:
And so whilst some may call Rachel cruel, I personally diagree and believe this is a very good policy. There are currently 2.8 billion people economically inactive, claiming this to be due to ill health, which is just absurd. We need to reduce the number of free handouts we give and simply get more people back into work. Reeves did well with The £1bn investment in “back to work” programmes which also helps address the problem of the projected 3.6MILLION(roughly 1 in 12) working age people by 2030.
Okay, moving on to spending cuts. Government spending has spiraled over the past few decades, and the £3.6bn cut to departmental budgets by 2029-30 is a necessary step towards long-term fiscal responsibility. The issue here is efficiency: where the cuts fall will determine their effectiveness. If they target wasteful bureaucracy, then this is a smart move. However, if frontline services like education and healthcare take the hit, this could be problematic.I mean it's also worth noting that departmental spending tends to rise every year due to inflation and increased demand. Though these cuts may seem significant on paper, but in reality, they could simply slow down the rate of spending growth rather than making drastic reductions. Reeves has chosen to keep tight control over fiscal policy, which suggests she is serious about keeping public finances sustainable. The key question is whether these cuts will be executed in a way that improves efficiency rather than reducing service quality
The planned £6.4bn increase in defence spending by 2027, with a £2.2bn rise in 2025-26, is a significant shift in priorities. Given the current geopolitical tensions; whether it be in Ukraine, the South China Sea, or the Middle East; strengthening the UK’s defence capabilities makes strategic sense. The UK has long faced pressure from NATO to increase its defence spending, and this move aligns with that objective. When the conservitives did bring up the fact that the 3 rate cuts was not enough, Reeves did blame geopolitical instability as a factor for her loose grip on the mini budget, logically sound, to be fair.However, this rise comes at the cost of reductions in the overseas aid budget. Some argue this is justified: why should taxpayers fund foreign aid when public services at home need investment? Others warn that cutting overseas aid could worsen global instability, indirectly leading to security issues that require even more defence spending in the future.
One of the biggest challenges in the UK economy is the housing crisis. It's something that I just keep coming back to when looking at why Britan's Economy is just so bad compared to the redst of the G7 countrys. With house prices and rent soaring, increasing housebuilding to 305,000 homes per year by 2029 is a crucial reform. Compared to the 269,500 homes built in 2022-23, this is an ambitious yet necessary target.
As Danny once told me: NIMBYism. The UK’s restrictive planning laws have long been a barrier to development, and Reeves seems to be addressing this issue head-on. If executed properly, these reforms could help lower house prices, making homes more affordable for young people. However, the real challenge lies in whether local councils and planning authorities will cooperate, as many developments face opposition from local residents.
Raising capital spending by £2bn annually compared to previous plans is a pragmatic decision. Infrastructure investment drives economic growth, and with the UK facing productivity challenges, spending more on roads, transport, and digital infrastructure could yield long-term benefits.
Defence Spending: Set to rise by £6.4bn by 2027, funded by reductions in the overseas aid budget, including a £2.2bn increase in 2025-26.
Capital Spending Increase: £2bn added annually compared to the previous autumn plans.
Tax Compliance Measures: Expected to generate £2.2bn by 2029-30.
No changes to taxes or relaxation of fiscal rules to permit additional borrowing, but we'll see if she will stick to this in the Autumn budget
I mean it's also worth noting that departmental spending tends to rise every year due to inflation and increased demand. Though these cuts may seem significant on paper, but in reality, they could simply slow down the rate of spending growth rather than making drastic reductions. Reeves has chosen to keep tight control over fiscal policy, which suggests she is serious about keeping public finances sustainable. The key question is whether these cuts will be executed in a way that improves efficiency rather than reducing service quality
However, this rise comes at the cost of reductions in the overseas aid budget. Some argue this is justified: why should taxpayers fund foreign aid when public services at home need investment? Others warn that cutting overseas aid could worsen global instability, indirectly leading to security issues that require even more defence spending in the future.
One of the biggest challenges in the UK economy is the housing crisis. It's something that I just keep coming back to when looking at why Britan's Economy is just so bad compared to the redst of the G7 countrys. With house prices and rent soaring, increasing housebuilding to 305,000 homes per year by 2029 is a crucial reform. Compared to the 269,500 homes built in 2022-23, this is an ambitious yet necessary target.
As Danny once told me: NIMBYism. The UK’s restrictive planning laws have long been a barrier to development, and Reeves seems to be addressing this issue head-on. If executed properly, these reforms could help lower house prices, making homes more affordable for young people. However, the real challenge lies in whether local councils and planning authorities will cooperate, as many developments face opposition from local residents.
Raising capital spending by £2bn annually compared to previous plans is a pragmatic decision. Infrastructure investment drives economic growth, and with the UK facing productivity challenges, spending more on roads, transport, and digital infrastructure could yield long-term benefits.
That being said, capital investment must be targeted effectively. If this additional funding is wasted on inefficient projects, it will not deliver the returns the government expects. The effectiveness of this policy will largely depend on how well the money is spent.
Generating £2.2bn by 2029-30 through tax compliance measures is an interesting policy. The government is essentially betting that cracking down on tax evasion and avoidance will bring in more revenue without the need for direct tax hikes. This is politically smart, tax rises are unpopular, but making sure people pay what they legally owe is an easier sell.
Tax avoidance schemes can be incredibly complex, and HMRC will need significant resources to chase down lost revenue. If implemented properly, this could be an effective way to boost government income without placing extra burdens on taxpayers. Whilst reading the 50 page document, I also stumbled upon a reward system for informants of tax evaders. I mean, those evading taxes are either going to move out the country, or simply higher better accountants and what about trade? Those that are likely to be avoiding taxes are the handymen that fix lightbulbs, am I really going to be inclined to “snitch” on someone that just fixed a 2 week old broken tap?
Reeves has chosen to stick to strict fiscal rules, meaning no major tax hikes or borrowing increases. This is likely aimed at reassuring markets that the UK remains financially stable. While this fiscal discipline is commendable, the real test will come in the Autumn Budget.
If economic conditions worsen, will Reeves stick to these rules, or will she be forced to adjust? Some argue that increasing borrowing for investment (such as infrastructure and housing) could be justified, as it would stimulate growth in the long run. However, excessive borrowing can lead to higher interest payments, crowding out other spending priorities.
Overall, Reeves has taken a cautious approach(perhaps wisely so)but whether she can maintain this stance in the face of economic pressures remains to be seen.
That being said, capital investment must be targeted effectively. If this additional funding is wasted on inefficient projects, it will not deliver the returns the government expects. The effectiveness of this policy will largely depend on how well the money is spent.
Generating £2.2bn by 2029-30 through tax compliance measures is an interesting policy. The government is essentially betting that cracking down on tax evasion and avoidance will bring in more revenue without the need for direct tax hikes. This is politically smart, tax rises are unpopular, but making sure people pay what they legally owe is an easier sell.
Tax avoidance schemes can be incredibly complex, and HMRC will need significant resources to chase down lost revenue. If implemented properly, this could be an effective way to boost government income without placing extra burdens on taxpayers. Whilst reading the 50 page document, I also stumbled upon a reward system for informants of tax evaders. I mean, those evading taxes are either going to move out the country, or simply higher better accountants and what about trade? Those that are likely to be avoiding taxes are the handymen that fix lightbulbs, am I really going to be inclined to “snitch” on someone that just fixed a 2 week old broken tap?
Reeves has chosen to stick to strict fiscal rules, meaning no major tax hikes or borrowing increases. This is likely aimed at reassuring markets that the UK remains financially stable. While this fiscal discipline is commendable, the real test will come in the Autumn Budget.
If economic conditions worsen, will Reeves stick to these rules, or will she be forced to adjust? Some argue that increasing borrowing for investment (such as infrastructure and housing) could be justified, as it would stimulate growth in the long run. However, excessive borrowing can lead to higher interest payments, crowding out other spending priorities.
Overall, Reeves has taken a cautious approach(perhaps wisely so)but whether she can maintain this stance in the face of economic pressures remains to be seen.
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