The follow up to Rachel Reeves’ huge raid on employers last year was expected to be more subdued, after all a 3% increase in employers National Insurance Contributions (NICs) did have the expected effect of slowing wage growth and a slowdown on new jobs, what we couldn’t have expected until a few weeks ago is that she’d come back again for it. Not for employers NICs, mind you not directly, but via the limit on Salary Sacrifice. When we have a Pension Commission ongoing on outcomes for current workers saving into private pensions, and have had an excellent piece by the Institute for Fiscal Studies (IFS) stating “39% of private sector employees are not on track to meet their target replacement rate”, it seemed unfathomable that this government would actually go for raising billions off Salary Sacrifice schemes.
Sure enough, budget day comes, and Reeves has done exactly that, with a damning description from the OBR saying this measure would both reduce their employer contributions into pension pots and reduce future wage growth and bonuses. Hardly the message we want to send for the working age person trying to save for retirement. Even more foolhardy is that this reduction in wage growth comes when companies are faced with more employment pressures for hiring, with minimum wages creeping up above inflation, leaving less room for wages to grow and less jobs on the market. The tax choices this week will mean less growth and more unemployment for younger workers, whilst subsidising an ever unsustainable triple lock that benefits from double dipping on high inflation one year and higher nominal wage growth the next in response to inflation, this is not a budget that treats the savings of working age people well.
This budget confirmed the announcement on the Government following the US’ lead (and the EUs position this month) on removing a de minimis threshold on imported items. Paraded as a way to avoid high streets being undercut, it is dipping into the same protectionist rhetoric that the US is using on its tariffs, unconcerned on their policy measure responses on the cost of living. Liberals should never celebrate the imposition of tariffs and find it regrettable the new direction of travel is for new tariffs rather than liberalisation, a burden on the individual to collect items rather than ease, just another way this government is harming productivity.
The past couple weeks briefed this budget as a Smörgåsbord, that conjures up a well presented Swedish table, but the tax pickings here are anything but.
A slab-style mansion tax that is costly to implement on local authorities for the next three years, almost certainly to cause valuation challenges to avoid £2000 cliff edges, skirting any real reform of local government taxation especially with the meagre £400 million raised going to central government.
For small business owners, the extension of first year full expensing is now countered by a reduction on writing down allowances for items not yet qualifying for the former, distorting investment when there has been hope for simplification and rationalisation of corporation tax base for growth.
For receiving dividends, the increase in the ordinary and upper dividend rates is taxed further, alongside the misaligning property and savings income from income tax, without any clear direction of what government wants the tax system to look like (especially after it was briefed this could have been done by a change in national insurance and income tax instead).
And it wouldn’t go amiss without mentioning the centrepiece of this budget, and the true killer on the ordinary working person, the continuation of Jeremy Hunt’s tax threshold freeze. The benefits of Liberal Democrats taking millions out of paying tax now mean working people pay more and more to directionless state spending with little to show for its benefit to them during a cost of living crisis. The Tories mismanagement has been maintained with Labour with an added layer of contempt for aspiration, and it shouldn’t be a surprise that Labour’s economic growth message has faded away as there is no plan to get us growing again!
This is an article by Brandon Masih, a Liberal Democrat campaigner in Reading, writing in his capacity as co-Chair of Liberal Reform.
* Brandon Masih is a Liberal Democrat campaigner in Reading. Views expressed in this piece are not representative of Reading Liberal Democrats, Young Liberals, LibSTEMM or Liberal Reform
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15 Comments
Socialism doesn’t work. It never has and never will.
Absolutely spot on Brandon. This Budget, broadly, is a mess that will do more harm than good. While I commend her for (finally) doing the right thing and scrapping the two child benefit cap, it doesn’t mitigate the impact of her decisions.
She may have found a “£26 billion surplus”, but I wonder just how much of that will be used wisely? I’m not optimistic.
It’s a damning indictment of the political skills of the labour leadership that within a year they’ve become the public face of Britain’s economic troubles. The reality is that our current situation stems primarily from two self-inflicted wounds—austerity under the Tory/LibDem coalition and Brexit driven by the Tories and Reform—compounded by two external shocks: Covid and Russia’s invasion of Ukraine.
Labour inherited this mess but have somehow managed to own it entirely in the public consciousness. That’s a catastrophic failure of political messaging, particularly when the evidence for where blame actually lies is so clear.
I’m afraid the future for the UK is pretty bleak. Best case: a succession of unpopular governments struggling through economic stagnation. Worst case: a far-right government accelerating our decline. Viewing this from north of the border is a somewhat surreal experience. England looks like a country that has completely lost touch with reality.
Labour always manages to mess up the economy as they are incompetent with handling public money mixed with their obsession witb high tax, high spending and borrowing plus their subservience to trade unions as their paymasters. Labour practice class envy too. The voters don’t want them in office anymore than the Conservatives who also messed up. Remember that Labour only won a third of the vote last year.
More than a decade ago, I brought up the issue of tax loss from salary sacrifice for pensions with Steve Webb, who was then Pensions Minister, and he admitted that they had not thought about the issue when they extended the principle of salary sacrifice to include pension contributions. The Government, incidentally, employed salary sacrifice for its own staff long before they allowed it for anyone else; when I joined the Civil Service in the 1990s my offer letter stated that my salary had been reduced by 8% as a replacement for my employee contribution to my Civil Service Pension. When you are running an unfunded pension scheme, as the Civil Service Pension was, it made the Department spending look lower, even though everyone knew that another administration in the future was going to have to pick up the tab for it.
There seems to be a lot of Labour bashing on this thread. Which political policies would the critics like the Labour Party to follow? Probably not those advocated when Jeremy Corbyn was leader. Keir Starmer did seem to be the Lib Dem choice because “his Labour Party” was the closest to the Lib Dems in the political spectrum . There was hardly any criticism of him or Labour during the ’24 election campaign. All the attacks were on Johnson, Truss and Sunak.
The may not have been a formal strategic alliance but there were a lots of tactical ones at local level. Lib Dems only ran paper candidates in many constituencies including my own. It would have been more honest, as well as saving £ thousands in deposit money, if Lib Dems had said “we aren’t standing so please vote Labour.”
We all knew the policies that Labour would adopt, and that they would facilitate the rise of the far right. Everyone who supported Starmer has to accept their fair share of the responsibility.
@Andrew Melmoth “England looks like a country that has completely lost touch with reality.”
I found the opening of David Olusoga’s “Empire” interesting, as it started from just before Britain had an empire and threw a light on what this nation really had to offer the world – it wasn’t much. Looking at the UK now, without the empire and out of the EU, I find myself also asking just what we have to offer, beyond an financial services sector that is being sidelined, as other centres rise. We are going to need to wake up to just what the UK can offer the world, as we need to generate an increasing level of exports to be able to feed our excessively large and still growing population…
Most of the angst about the UK’s economic woes seems to stem from our supposed over indebtedness. UK debt/GDP is 107%. This is much the same as France 115%, Belgium 116%, Spain 118%. Portugal 131%, Italy 157%, USA 133% Much lower than Japan with 257%. So why is 107% a cause of political knickers getting in a twist?
So we are nowhere near in as bad a shape as the doom mongers make out. Sure, the UK has problems but we have to get these into the right perspective. The UK’s GDP per person is £39,000. Most problems could be solved without any need for growth if only this was shared out a little more equitably.
Excellent piece. Re last year’s employer’s NIC increase, I heard Toby Dicker talk about it’s impact. On bbc 5L Nicky Campbell Tuesday he mentioned that it’s resulted in 63% of hairdressers moving from employed to self employed. He reiterated that an employed person on £40,000 salary pays 55% more tax than a self employed person! I don’t understand why the media has not made a bigger story of this, given the unfairness and that it’s encouraging tax avoidance and tax evasion.
@ Peter Marin
“Which political policies would the critics like the Labour Party to follow?”
Liberal Democrat ones obviously!
That is, policies informed by the following which have proved remarkably successful in increasing wealth and freedom over the years, and in no particular order:
The rule of law
Human rights
Representative democracy
Free speech and rational analysis of data
Properly regulated free trade and free markets
Balanced budgets
Internationalism
@Peter Martin
“UK debt/GDP is 107%. This is much the same as France 115%, Belgium 116%, Spain 118%. Portugal 131%, Italy 157%, USA 133%. So why is 107% a cause of political knickers getting in a twist?”
People are getting their knickers in a twist about France, US and the rest. See for example: https://www.economist.com/leaders/2025/10/16/the-rich-world-faces-a-painful-bout-of-inflation and other articles articles in this edition.
I’m afraid I’m not impressed by “Modern Monetary Theory as a way out. It’s not a coincidence that MMT also stands for Magic Money Tree!
@ Tristan,
I’m not sure that you really want another LibDem party. You’d just be angling for the same fish in the pond.
I do like to ask Labour canvassers (I don’t see any Lib Dem ones around here) just what political differences they have with the Lib Dems. At one time they had the easy answer that they were socialist and you weren’t. That’s no longer the case. I haven’t had any sensible answers so far. They’d agree with your list no doubt. They’d likely be just as pro EU as the Lib Dems too.
I’m not totally sold on MMT. Especially the way some of the devotees misinterpret it. But it does offer some useful insights. The National Debt issue is one of them. The figures supplied aren’t from an MMT source. So regardless of anyone’s opinion on MMT the question of “twisted knickers” still remains to be answered.
@ Tristan,
PS It probably is a co-incidence that MMT also stands for Magic Money Tree. 🙂 If it isn’t there must be a God in his heaven with a mischievous sense of humour.
“At one time [Labour’s] canvassers had the easy answer that they were socialist and Lib Dems weren’t.”
This tells you not that Labour canvassers aren’t socialist (they are) but that they are afraid to say so. Whether they agree with my list or not, I think their party’s actions both in government and outside it) say otherwise.
I think Labour members have three options:
1 Say they are socialists/marxists, democratic or otherwise.
2 Join the Lib Dems in the knowledge they are joining a liberal party, not a socialist one;
3 Join Corbyn (or possibly the Greens)
Thanks Brandon for a very inciteful analysis – I agree with every word. I do wish commentators would unpick the “benefits” argument more. Lifting the two-child cap on child benefit was much needed, but the Universal Credit payments on people not working and not studying is out of control and crowding out far more useful and poverty reducing expenditure (eg Sure Start). How can we use UC as a hand up and not a hand out? We also need to look at the Pension triple lock, but of course OAPs vote in droves so it’s tricky.