22/11/2025 by Tony Redondo
After months of speculation, U-turns and chaos, this Labour government’s second budget is nearly upon us with Chancellor Rachel Reeves looking to bridge a £30 Billion fiscal gap next Wednesday, 26 November.
Reeves’ 2024 budget left only £9.9 billion of headroom against fiscal rules in 2029-30, a cushion that has long evaporated. The 2024 budget added £74.2 billion in spending by 2029-30, partially offset by £41.2 billion in tax increases and Reeves changed the fiscal rules, introducing a fixed 2029-30 deadline rather than a rolling five-year target. By March 2025’s Spring Statement, higher debt interest payments had eliminated the surplus. Subsequent policy reversals on winter fuel payments and welfare reforms cost an additional £6 billion and the OBR is expected to downgrade its productivity growth forecast. Each 0.1% reduction worsens the public finances by £9 billion. A consensus 0.2% downgrade suggests a £20 billion deficit, leaves Reeves looking for £30 billion of fiscal tightening to restore headroom.
Small Businesses Concerned Over Autumn Budget | Newspage News
This fiscal issue is not unique to the UK nor new. From 1997-98 to 2025-26, public spending grew 2.5% annually in real terms—well above the 1% needed for population growth and demographics. The state has expanded from 35% of GDP in the late 1990s to 45% in the late 2020s, while taxes rose from 32% to 37.5% of GDP. Post-2008 nominal GDP economic growth has averaged 4.2% annually versus 4.9% pre-crisis. Had pre-crisis growth continued, the economy would be £380 billion larger today and easily eliminating the deficit.
Additional rate taxpayers (those whose taxable income exceeds £125,140 pay 45% tax on income above this threshold only make up 3% of all taxpayers but already pay 40% of income tax revenue at an average rate of 37.4%, double the overall average. Raising the top rate generates minimal revenue with each 1p increase only providing an additional £230 million by 2028-29.
Realigning capital gains tax with income tax rates could potentially yield £18 billion but creates serious economic problems as it is affectively a double taxation of already-taxed income, fails to account for inflation and introduces a structural bias against investment. This measure would leave the UK with the highest CGT rate in the OECD (Organisation for Economic Co-operation and Development) risking capital flight.
The fiscal gap is real and substantial. Taxing the rich may be to some a just social cause but global data shows the actual results are always counterproductive. Real spending restraint requires genuine reform. The UK public sector must do less, not just spend less.
This week’s public finance data simply adds to the pressure on Reeves. The UK public sector borrowed £116.8 billion in the seven months to October, £9.9 billion more than the OBR’s (Office for Budget Responsibility) March forecast with the overshoot on the current budget deficit (borrowing to cover day-to-day spending) a massive £15.1 billion. This is crucial, because the government’s deficit rule requires this measure to be in surplus by 2029-30.
The reality is that the bond markets and not ministers will decide the fate of Reeves’ second Budget and it will hinge on a simple reality. Credibility is assessed in yield movements, not speeches, and the response from the bond market will set the tone for the entire economy long after the political commentary dies down. The markets are on red alert; liquidity is thin and tolerance for missteps has gone. Once confidence wavers, the repricing comes quickly as we found out with the Truss / Kwarteng mini-Budget of September 2022.
A disciplined approach could stabilise the bond markets. A clear path for debt, credible fiscal rules and a commitment to consistency would give investors’ confidence that the government understands the gravity of the situation. This confidence would support lower yields, ease refinancing pressure and provide breathing space for businesses and households. It would also help anchor expectations internationally at a time when the UK needs steady inflows of capital.
A weaker approach will carry a heavy price. If the plan announced by Reeves next Wednesday appears fragmented or politically engineered rather than economically grounded, the bond markets will react instantly. Higher yields would tighten conditions across the economy and intensify the slowdown already visible in a multitude of corporate surveys, employment data and household spending.
The political fallout would be secondary. The financial consequences would dominate.
Economist Dr Gerard Lyons may have the answer. The BoE pays banks bank rate on the reserves that they place with the BoE. Data shows that the banks actively bolster the reserves that they place with the BoE simply because of the attractive interest rate offered on those reserves. The removal of the payment of interest on bank reserves other than for the regulatory amount of capital required is estimated to save the Treasury of £20 billion per annum and would encourage the banks to inject much needed investment into the UK economy which would in turn generate Chancellor Reeves’ so far elusive economic growth and obviate the need for many of the mooted increases in taxation.
Currency Exchange Rates Update
The Pound eked out a 0.2% gain this week against the Euro but remains 1.2% down in the last month and nearly 5.5% down in the last 12-months.
Against the US Dollar, the Pound fell by 0.65% last week and has lost 1.9% of value in the last month but remains 4% up on this time last year.
The currency markets now give an 80% chance that the BoE (Bank of England) will cut UK interest rates when they next meet on 18 December following the latest UK inflation data from the ONS (Office for National Statistics) which showed UK inflation rising to 3.6% in the year to October, a 0.2% fall from the three preceding months.
The currency markets are braced for a pivotal Budget on Wednesday.
This week, the key economic data releases include:
Monday Germany IFO Business Survey
Tuesday Germany GDP
US PPI Inflation & Retail Sales
Wednesday UK Budget
New Zealand RBNZ Interest
US GDP & New Home Sales
Thursday EU Consumer Confidence
US Thanksgiving Holiday
Friday France GDP & CPI Inflation
Germany Employment & CPI Inflation
UK & USA Black Friday Sales
What’s in the news?
A new YouGov survey shows that public faith in Britain’s economy has plummeted to an all-time low with 0% of the public believing the UK economy is in a ‘very good state’. A measly 4% rated economic conditions as “fairly good”, 44% think the economy is in a fairly bad state, and 35%described the economic situation as “very bad”.
The same YouGov survey also exposed the public’s utter lack of confidence in Rachel Reeves and Keir Starmer’s handling of the economy, with just 1% saying they’re doing “very well” and 13% mustering a “fairly well” assessment with 77% saying the duo’s performance as fairly or very bad.
Even among Labour’s own voters from the 2024 general election, the survey found more than double the number of people now believe the party is making an utter hash of running the economy and 45% of Labour Party voters saying PM Sir Keir Starmer should not lead Labour into the next election and 23% think the PM should quit now.
An Ipsos poll shows Chancellor Rachel Reeves is officially the most unpopular Chancellor in history. Senior director of UK politics at Ipsos, Gideon Skinner, said, “On top of continued record unhappiness with Keir Starmer, Rachel Reeves’ satisfaction ratings have also hit a record low this month, the worst for any chancellor since we started monitoring in 1976. This comes in the context of persistent economic anxiety, with more people today struggling to cope than we were seeing in 2022 when the cost-of-living crisis first started to bite.” Skinner added, “Historically we’ve only seen similar levels of scepticism over the government’s long term economic plans in the last years of the Major and Sunak governments, and under Brown after the financial crash.
Leaks: A Growing Concern Ahead of Budget Day | Newspage News
Nearly three months after she had to resign as deputy Prime Minister and housing secretary, Angela Rayner still hasn’t paid up her £40,000 stamp duty bill.
Defence Secretary John Healey is the latest member of the Labour government to get into hot water over their tax affairs after underpaying council tax on his second home. Healey underpaid close to £1,500 in tax on his Westminster flat. Mr Healey blamed his underpayment on “an administrative error” by Westminster City Council.
UK
When 400 members of Helm, one of Britain’s biggest business networks were asked in an online survey, “Do you believe the government is anti-business?” 64% said “yes,” 23% said “no” and 14% said “don’t know.” The survey also asked, “Do you think the government rewards people for working hard?”, 95% said “no,” 2% said “yes;” and 3% said “don’t know.” Some 20% of respondents voted Labour at the last election while 49% voted Conservative, 9% voted Reform and 6% voted Liberal Democrat. Helm members are founders of scale-up businesses with average revenues of £21 million per year and a combined revenue of more than £8 billion. Helm members’ businesses collectively contribute £1 billion annually in tax revenues through corporation tax, employer National Insurance contributions, and other business taxes. A poll of Helm members in October revealed three-quarters had frozen investment and hiring plans until after the Budget.
The Laffer Curve – Cosmos Currency Exchange
The UKs only provider of personal guarantee insurance (PGI) to small business owners, Purbeck Insurance Services is calling on the Government to use the Budget to give small businesses the certainty and stability they urgently need after data showed that SMEs have turned to borrowing for cashflow with 38% of SME loans taken in October were purely for working capital, to sustain cashflow.
The latest Barclays Business Prosperity Index shows 55% of SMEs have paused investment plans amid heightened economic uncertainty, 7% more than last year. At the same time, insolvencies are rising sharply with the Insolvency Service reporting a 16.7% year-on-year increase in business failures with more than 2,000 companies entering liquidation in October alone.
Good news
The first increase in the FSCS (Financial Services Compensation Scheme) limit for 8 years will raise the level of protection on qualifying UK savings accounts from the current £85,000 from the 1st of December to the new limit of £120,000.
Not so good news
The OECD says UK economic growth faltered in the third quarter, slowing to 0.1% from 0.3% in the second quarter. The decline is attributed to “destocking continued,” where firms are not replacing sold goods.
Meanwhile, S&P Global’s PMI (purchasing managers’ index) shows the UK economy flatlined in November as pre-Budget nerves hit growth across the private sector.
The composite reading for services and manufacturing was just 50.5, marginally above the benchmark figure for neutral output. The data is consistent with no change in GDP over the month. Chris Williamson, chief business economist at S&P Global, said the data reflected “disappointing news” for the country as it braces for a difficult Budget, with a possible contraction possible.
UK retail sales slumped in November ahead of the Budget and Black Friday, falling 1.1% in October following a 0.7% rise in September, a “disappointing” start to the all-important festive season ahead of the budget.
The GfK consumer confidence barometer shows consumer confidence is ‘bleak’ ahead of the Budget with the overall index falling to -19 in November. The reading for feelings about the general economic situation at present came in at -43 while the measure for expectations about the economy in the next 12 months also dropped in November.
The CBI (Confederation of British Industry) reported that UK manufacturing output has plummeted with the balance reading for output volumes dropped to -30%, the lowest since August 2020. CBI economist Ben Jones warned, “Manufacturers face a challenging end to the year.” The survey also indicated that total order books and export orders remain below long-run averages.
Research reveals that over a third of family businesses in the UK are at risk of closure due to the tax rises introduced by Chancellor Rachel Reeve sin her first budget in 2024 with nearly 66% of the 4.8m family firms concerned about their future. The study from WSP Solicitors shows that 84% believe proposed changes to VAT and personal taxes would worsen their situation. Peter Mardon, commercial director at WSP, said, “Businesses of all shapes and sizes are having to make tough decisions.” Additionally, 14% of firms have abandoned succession plans due to the tax environment.
USA
The BLS (Bureau of Labor Statistics) said some US economic data was permanently lost during the government shutdown, an information shortfall that could make economic policymaking harder. The BLS also said the October jobs report would not be released independently. It is the first time in 77 years that the government will not publish an unemployment rate. Price data may also be lost. The lack of information comes with the Federal Reserve divided over whether to cut rates before the year end. The Fed next meet on 10 December.
September’s much-delayed jobs report shows the US economy added 119,000 jobs in September, surpassing economists’ expectations but the unemployment rate ticked up. The report ended the seven-week data drought brought on by the longest government shutdown in history.
Nvidia blew past Wall Street’s earnings and revenue expectations and provided a stronger-than-expected forecast for the current quarter.
NVIDIA Reports Record Revenue in Q3 Results | Newspage News
Two-thirds of US voters say democracy is the best form of government, according to a new report from Gallup and the Charles F. Kettering Foundation but 51% say that US democracy is working poorly, and just 24% think it’s working well. Only 18% of Americans say Congress is working well, while 29% say the same of the presidency and 28% say so of the Supreme Court. Republicans are more likely than Democrats to say democracy is performing well overall.
Texas is establishing itself along with Indonesia at the forefront of the global geothermal energy drive despite being better known for its offshore oil and onshore fracking industries. Using the drilling technology from fracking, Texas has the ability to go deep to the hottest seams of heat, the legal framework since surface ownership automatically confers the rights to the ground below and lastly the ability to store that energy output led by SAGE Geosystems which is backed by Meta. Moreover, Texas has the demand with those vast server farms supporting the AI industry. Servo is a $1.4 billion start up backed by Google has the technology to go very deep as does Mazama which provides the equipment to the industry.
The EU
The European Commission’s autumn forecasts the EU economy to grow by 1.4% in 2026, surpassing the UK’s expected growth of 1.2%. The growth is driven by strong performances in Poland and Spain. The EU’s inflation rate is expected to be 2.1%, compared to the UK’s 2.5%.
Others
There is speculation that China is reportedly considering a new stimulus package for its struggling real estate sector, an industry that if weakened further could threaten the country’s financial stability with officials in Beijing reportedly studying options such as mortgage subsidies and lowering home transaction costs to reverse the sector’s years-long slump. While Chinese investors have gradually reduced their exposure to real estate, a huge share of the country’s wealth remains tied up in property that is fast losing value.
The minutes of the last RBA (Reserve Bank of Australia) meeting held on 4 November suggest interest rates will likely stay put as long as economic data holds up.
South Africa cut its benchmark interest rate by 0.25% to 6.75% on 20 November, its lowest level in more than two years. The National Treasury’s decision to scrap plans to raise value-added tax, as well as a stronger exchange-rate assumption, and lower oil prices all helped to revise down inflation forecasts, paving the way for the rate cut.
Producer prices in New Zealand slowed sharply in the third quarter easing cost pressures for manufacturers and consumer goods firms. Input prices rose just 0.2% quarter-on-quarter, well below forecasts of 0.9% and last quarter’s 0.6%. Output prices held steady at 0.6%, missing expectations and signalling weaker pricing power.
Singapore’s exports grew at their fastest pace in nearly four years in October with non-oil shipments surging 22.2% from a year ago, triple the pace analysts expected. Electronics led the charge, up 33.2% thanks to strong demand for personal computers and integrated circuits. Non-electronic goods rose 18.8%, driven by gold and pharmaceuticals. Most of Singapore’s top trading partners boosted purchases, but exports to the US dropped 12.5% due to tariff concerns.
Stranger than fiction
The World Bank reported that the number of people worldwide without official proof of identity has dropped from over 1 billion in 2017 to 800 million. Access to digital IDs has improved too, with 400 million more people now covered than in 2021.
The old adage that ‘bad news sells newspapers’ is alive and well according to the latest research from Our World in Data. They analysed every article published by the New York Times, Washington Post and Fox News in 2023 and compared their coverage to what Americans actually die from. Heart disease and cancer together accounted for 56% of deaths in America. That received 7% of media coverage. Terrorism killed 16 people in the US that year. It got more attention than heart disease, cancer, stroke, Alzheimer’s, diabetes, kidney disease, and liver disease combined. In fact, terrorism received 18,000 times more coverage than its share of deaths, while homicides were overrepresented by a factor of 43. Heart disease kills 2,000 Americans every single day, which means it isn’t news, because it isn’t new. Tomorrow’s headline is always identical to today’s. People who die from chronic conditions become numbers in reports that nobody reads. People who die in rare, violent events become stories, with faces and names, and we click on those stories, which tells news organisations to publish more of them.
The biggest news organisations aren’t reflecting the world. They are reflecting what’s dramatic, rare, and cheap enough to turn into a story. If you’re after an accurate picture of what’s getting worse, or what’s improving, you’ll need to look somewhere other than the legacy media.
Quote
Chancellor Rachel Reeves, “The Budget is an opportunity to bring honesty to the public finances.”
