I think the issue is that rates seem disconnected from UK econ fundamentals currently (can debate how far potential has fundamentally shifted but I’m sceptical by this much) so we’ve got real yields squeezing capacity unhelpfully.
Replies
For sure there would be some offset from lower rates but here it *reduces* requirement to frontload tax hikes because it improves debt service cost trajectory.
sep 2, 2025, 9:13 am • 0 0 • view
The taxes are *paying for current spending* so it’s more redistribution than consolidation. So I think it’s wrong to think of it as potentially facilitating tightening but true that tightening could induce lower rates. I’m saying the frame of austerity is wrong.
sep 2, 2025, 9:16 am • 1 0 • view
Put simply and crudely, my view remains that ministers are going to have to sacrifice control of inflation to growth and reducing debt servicing costs. “Borders, Bills, Jobs” (assuming that’s still a theme - difficult to keep up) isn’t going to work.
sep 2, 2025, 9:28 am • 1 0 • view
Disagree. Given how much of the debt is index-linked, inflation hammers debt service costs. And it is electoral poison. No easy answers, but broad-based tax rises are going to be needed. Which means tax reform.
sep 2, 2025, 9:33 am • 0 0 • view
Raising revenue and tax reform are separate, although related, issues. Reeves needs to raise revenue quickly, and that means junking the manifesto pledges. She also needs to sort an increasingly dysfunctional tax system, which is partly the result of Brown and Osborne’s obsession with stealth taxes.
sep 2, 2025, 9:45 am • 2 0 • view
Totally agree on this. The tax system is a hot mess and squeezing any more revenue out of it without reform is practically impossible. As the old joke goes, you don't want to be starting from here.
sep 2, 2025, 10:56 am • 0 0 • view
Ideally the two objectives come together, but they’re not going to do that before October for two reasons: tax reform needs thinking through (and there’s no sign that Reeves has done that); and the ground needs to be prepared (and she’s certainly not done that).
sep 2, 2025, 9:45 am • 2 0 • view
Inflation wrecks your electoral chances, though.
sep 2, 2025, 9:45 am • 0 0 • view
Yup. Governing is hard. We’ve seen this movie before in the 1970s. Thatcher’s solution was to junk any attempt to maintain full employment. Are Labour going to junk growth to reduce inflation?
sep 2, 2025, 9:49 am • 1 0 • view
Going for inflation and full employment doesn't make sense politically in Europe given the median voting age. Add in that a significant percentage of (potential) employees have no voting rights due to not being citizens. The consequence is that the current malaise and stagnation continues.
sep 2, 2025, 9:54 am • 0 0 • view
I suspect they will, yes.
sep 2, 2025, 9:49 am • 1 0 • view
They don’t have the ability to do this in the current institutional set up as the BoE would stop them out.
sep 2, 2025, 9:42 am • 1 0 • view
Don’t they? Why did the Bank cut interest rates when inflation was over twice its target?
sep 2, 2025, 9:47 am • 1 0 • view
I still think interest rates will go up again, but I know nowt.
sep 2, 2025, 2:22 pm • 0 0 • view
Because they thought that it had peaked, the growth trade-off was biting, policy remained tight (albeit modestly less so) and so inflation would come down. Government pushing up demand enough to get inflation rising again is a different problem.
sep 2, 2025, 9:49 am • 0 0 • view
Unfortunately they keep thinking inflation has peaked. Difficult to avoid the impression that there's an inflationary bias in policy. Applying the lessons from the Great Depression to normal fluctuations around capacity isn't going to end well.
sep 2, 2025, 1:00 pm • 1 0 • view