Tax rises ‘inevitable’, thinktank warns, as Reeves set to warn markets of budget plans – business live

1 day ago7 min read6 comments

The fiscal stage is set for a consequential shift in the United Kingdom's economic trajectory, with Chancellor Rachel Reeves preparing to deliver a budget that analysts at Goldman Sachs predict could significantly alter the country's borrowing landscape. In a detailed research note circulated to clients, the Wall Street titan forecasts that Reeves's forthcoming fiscal measures, anticipated to tighten policy by approximately £30 billion, could potentially reduce the yield on 10-year UK government bonds by 10 to 20 basis points, a tailwind that might persist for a decade.This projection hinges critically on the Chancellor's ability to convincingly signal to the bond markets a steadfast commitment to fiscal discipline and a credible path toward deficit reduction, a task of paramount importance for a Labour government historically scrutinized for its spending inclinations. The core of this budgetary tightening, as dissected by Goldman's economists, is expected to rely heavily on tax increases rather than deep spending cuts, a strategy that includes the politically sensitive freezing of income tax thresholds from 2028, a broadening of the national insurance tax base, and adjustments to pensions and property taxes, all designed to generate a modest increase in fiscal headroom by the end of the forecast horizon.This approach reflects a delicate balancing act, attempting to reassure international investors and domestic institutions like the Bank of England without immediately stymying the fragile economic growth emerging from recent global turbulence. The very notion of a Labour Chancellor prioritizing bond market credibility harks back to the political realignment of the 1990s, yet the current global economic environment—characterized by persistent inflationary pressures and elevated debt levels across major economies—presents a uniquely complex challenge.Market participants will be scrutinizing every syllable of Reeves's 'candid' speech for clues not just on the magnitude of tax rises, but on the underlying long-term strategy for debt management and public investment. A failure to provide sufficient reassurance could trigger a sell-off in gilts, increasing the government's own borrowing costs and potentially forcing more aggressive, growth-dampening measures later.Conversely, a successful communication of a robust and sustainable fiscal plan could lower the risk premium attached to UK assets, reducing the cost of capital for both the government and private businesses, and creating a more favorable environment for the very investment the government seeks to encourage. The Goldman analysis suggests a belief that the markets are already beginning to price in these expectations, meaning the most significant market moves may occur in the days leading up to the budget announcement itself, rather than as a direct reaction to the event.This intricate dance between Treasury policy and market sentiment underscores a fundamental truth of modern governance: political power is increasingly exercised within constraints defined by global capital flows. The ultimate success of this budget will therefore be measured not only in parliamentary votes or opinion polls, but in the cold, hard data of gilt yields and the confidence of the investors who hold the keys to the nation's financial stability.

#lead focus news

#UK budget

#tax increases

#government borrowing

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#bond yields

#Rachel Reeves

#Goldman Sachs