20/09/2025 by Tony Redondo
Britain’s taxes are so high that putting them up again would cost more than they raise according to top US economist Dr Arthur Laffer, the brains behind the Laffer curve.
Dr Laffer, who advised Mr Trump during his 2016 campaign and was formerly an adviser to Ronald Reagan and Margaret Thatcher says the “UK is at – or perhaps already beyond – the critical point” on the curve.
In a statement, Laffer added, “The UK’s tax revenues, and thus the country’s ability to provide high-quality welfare to those who truly need it, plus other government services, have been seriously degraded. First, incomes are sufficiently low to create the need for welfare because of the UK’s high tax rates – especially on job creators. Second, high taxes over long periods divert production from good products to tax shelters and tax avoidance. And third, high taxes create a welfare mentality where everyone claims to be a victim. The UK should base policies more on incentives. Don’t tax what you like and don’t subsidise what you don’t like.”
His intervention comes with Ms Reeves’s last Budget, which raised taxes by £40 billion widely blamed for suffocating economic growth.
The BCC (British Chambers of Commerce) and leaders at several industry groups have called on Labour to avoid imposing more damaging taxes on companies.
Reeves’ tax increases have been ‘incredibly damaging’ to historic family business like Robinsons Brewery, which has been in business in Stockport for more than 180 years. The brewer cited the increases to employers’ National Insurance, the national minimum wage and the reduction in business rates relief as major factors which will drag down its financial performance this year. Robinsons Brewery also said the changes to business property relief will have a long-term impact on the family business and said the policy will damage “business investment and consequently the economy”.
The comments from Robinsons Brewery echo those of fellow Greater Manchester-based giant, JW Lees. William Lees-Jones, who owns and runs the seventh-generation business, said in November last year that the changes announced in the Budget represented an ‘existential threat’ to its future. Lees-Jones warned he was “facing the very real prospect that we will never be able to hand on the running of my business to our children”. He also said in the event of his death, his family will “simply not have the cash or liquid assets available to cover an enormous inheritance tax bill”.
This week’s staggering PSBR (Public Sector Borrowing Requirement) for August jumped to its highest level in five years. Borrowing was £18bn in August, £3.5bn more than last year and the highest since 2020. Borrowing in the financial year to August 2025 was £83.8bn, £16.2bn more than in the same five-month period of 2024 and the second-highest April to August borrowing since monthly records began in 1993. Overall, public sector net debt excluding public sector banks has been estimated at 96.4%of GDP at the end of August 2025.
This raises fears of huge tax rises in the 26 November budget to balance the books.
Currency Exchange Rates Update
The Pound was under pressure last week, losing nearly 0.75% against the Euro to hit its lowest level against the single currency in six weeks.
Experts warn Rachel Reeves is caught in a ‘debt trap’ | Personal Finance | Finance | Express.co.uk
Against the US Dollar, the Pound slid 0.6% last week to hit its lowest level in two weeks.
At the beginning of last week, the Pound slid to its lowest level against the Australian Dollar since March.
This week, the key economic data releases include:
Monday EU Consumer Confidence
Tuesday UK PMI (Purchasing Managers Index) – Manufacturing
EU PMI – Composite
Wednesday Germany IFO Business Sentiment
Thursday US GDP
Friday Canada GDP
US Consumer Sentiment
What’s in the news?
A new opinion poll makes grim reading for both Labour and the Tories. Find Out Now’s Voting Intention tracker shows both at 16%. It’s Labour’s lowest ever share of the vote. But it’s good news for Reform UK, who remain at 34%, cementing their position as the main opposition to the current Labour Government. The Lib Dems are up 1% to 13% and the Greens remain on 12%.
UK
The BoE (Bank of England) voted 7-2 to hold interest rates unchanged at 4% amid ‘sticky’ inflation but decided to slow down its quantitative tightening (QT) process from £100bn in the last year to £70bn in the next 12 months in light of the febrile state of the bond markets. Governor Andrew Bailey said, “Although we expect inflation to return to our two per cent target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully.”
Good news
The ONS (Office for National Statistics) reported that UK retail sales were bolstered by good weather and rising real incomes this summer.
Dr Kris Hamer, director of insight at the BRC (British Retail Consortium) said, “Even if this sales growth continues, it would not be nearly enough to mitigate the mass of costs hammering the industry since last year’s Budget… business confidence remains weak,”
Not so good news
The BRC reported that consumer confidence slumped in September. It’s the fourth consecutive deterioration in economic confidence.
Helen Dickinson, chief executive of the BRC said, “Worries about the Budget, combined with the increase in the cost of living, have eroded confidence, with little sign that inflation will come down soon. Today’s figures are a stark warning: retail jobs have plunged to a record low with 97,000 jobs lost over the last year, and almost 400,000 lost over the last decade.”
The ONS reported that 142,000 jobs have vanished over the last 12 months. PAYE data shows a seventh consecutive decline in the number of employees in August.
The Make UK/BDO Q3 Manufacturing Outlook survey shows manufacturing growth remaining weak for this year and 2026.
The latest HBF (Home Builders Federation) report warns the Government that London housebuilding is on the edge of collapse. A lack of buyer support, as well as excessive bureaucracy and significant planning delays, are “strangling” attempts to deliver desperately needed new homes. Planning approvals in the capital have fallen 2% year on year, and only four boroughs have met or exceeded their housing targets laid out in the 2021 London Plan, which aimed for 52,000 homes.
The ONS reported that the cost of London’s housing pushed England’s affordability ratio above the 30% affordability threshold in 2024. Londoners face the highest barriers to home ownership in the country, and a first-time buyer would need to save 50% of their discretionary income for more than 13 years to afford a deposit, with average deposits now amounting to nearly seven times annual income after bills.
Food inflation increased to 4% year on year in July according to the FDF (Food and Drink Federation) and could climb to 5.7% by the end of the year thanks to cost pressures on manufacturers “trickling down” to supermarket shelves. The report warns that current price rises were “steeper than anything in recent decades”.
The NCUB (National Centre for Universities and Business) warns that the UK’s attractiveness as a destination for life sciences and R&D investment is under threat after AstraZeneca’s decision to pause its £200m Cambridge expansion, alongside Merck’s withdrawal from a planned £1bn London discovery centre.
USA
Treasury Secretary Scott Bessent outlined three desired “trades” earlier this year, a weaker dollar, lower Treasury yields, and lower crude prices. Eight months into the administration, the dollar is down over 10% since Inauguration Day, 10-year yields are 0.6% lower, and WTI crude is nearly 20% lower.
The US Federal Reserve cut interest rates by 0.25% on Wednesday, its first cut since December 2024. The sole dissenter was Stephen Niran, the new Trump appointee, who wanted a more aggressive 0.5% cut. The Fed’s updated dot plots signal two more 0.25% cuts by year-end.
US stocks continue to run hot with both the Dow Jones and the S&P 500 indexes closing at fresh record highs.
US retail sales rose in August for a third straight month, the latest sign of consumer resilience.
The EU
Eurozone inflation has been revised down to 2% in August, in line with the ECB (European Central Bank) target with annual inflation remaining unchanged at 2.4%.
German investor sentiment continues to improve with the ZEW expectations index rising from 34.7 to 37.3 in September, suggesting cautious optimism about the economic outlook. While current conditions deteriorated as expected, forward-looking indicators point to a potential recovery, aided by fiscal expansion and accommodative ECB monetary policy.
German Chancellor Friedrich Merz won a convincing election in his home state with the anti-immigration AfD party tripling its vote share in what is seen as a bellwether region. Merz’s CDU party won more than a third of the vote with the AfD share of the vote rising to 15%.
Credit ratings giant Fitch downgraded France’s credit rating from AA- to A+. Fitch added that without drastic action, the debt burden of France will keep on growing and forecast it to reach 121% of GDP by 2027. France is the third most indebted Eurozone country after Greece and Italy.
Others
China’s economy remained under strain in August with industrial output rising by only 5.2% year-on-year, missing expectations for a 5.7% gain. Retail sales grew just 3.4%, below the 3.9% forecast. Fixed asset investment edged up only 0.5% from January to August, well short of the 1.4% consensus. New home prices fell another 0.3% month-on-month, the fourth straight monthly decline. The annual pace of price drops eased slightly to 2.5%, down from 2.8% in July. China’s survey-based urban unemployment rate in August rose by 0.1% to 5.3%. China’s consumer price index fell more than expected last month while producer price deflation running into its third year.
Australia’s job market stumbled last month, with headline employment dropping by 5,400 instead of the expected 21,000 gain. The damage came entirely from full-time roles, which plunged by 40,900, while part-time jobs rose by 35,500. The unemployment rate held steady at 4.2%, and the participation rate dipped slightly from 67% to 66.8%.
The BoC (Bank of Canada) lowered interest rates by 0.25% to 2.5% last week, it’s first cut since March. The cut followed sustained economic weakness caused by a 27% fall in exports and a 1.6% annualized GDP contraction in the second quarter amid US tariffs and trade disruptions. Unemployment rose to 7.1% in August. The BoC signalled no guidance on future moves, emphasizing it will watch trade impacts and economic data closely, while markets anticipate limited further cuts for the rest of this year into 2026.
New Zealand’s economy is on the ropes. GDP fell by 0.9% in the second quarter of 2025, substantially below the -0.3% estimate. Year to date, the economy contracted by 0.6%, significantly below the 0% expected by analysts. The NZ services sector contracted for the 18th consecutive month in August. The performance index fell to 47.5, well below the long-term average of 52.9. A reading below 50 signals contraction. Negative sentiment was up with 60% of responses expressing concern. Key indicators like sales, new orders and employment remain in the red.
Stranger than fiction
Its 10 years since scientists observed gravitational waves for the first time, confirming Albert Einstein’s 1916 prediction. Now it’s the turn of Stephen Hawking to be proved right. His “area theorem” posited that the event horizon of a black hole, from which not even light can escape, can only grow, and never shrink. The perfect way to test that is to use gravitational waves to measure the surface of two colliding black holes and the resulting, unified black hole. Physicists have done just that and analysis of a black hole collision detected in January conformed Hawking’s predictions perfectly, with the surface area of the merged black hole slightly larger than the sum of the two originals.
Israeli researchers have engineered enzymes that strip away the sugars on red blood cells, effectively converting all donated blood into universal type O. In lab tests, the enzyme-treated cells flowed safely with all blood types, opening the door to solving chronic shortages and making blood transfusions faster in emergencies.
Quote
Calvin Coolidge, 30th president of the US, “Collecting more taxes than is absolutely necessary is legalized robbery”
