STERLING sank to a seven‑month low after Rachel Reeves paved the way for income tax rises in a pre‑Budget speech this morning.
In a surprise speech on Tuesday, the Chancellor refused to rule out breaking Labour’s election pledge not to raise income tax, VAT or National Insurance.
She said “each of us must do our bit” and vowed to do “what is necessary” on tax and spending to bring down inflation, interest rates and government borrowing.
Her comments have raised fears that millions of workers could face tax rises in the November 26 Budget, and markets have reacted unevenly.
The pound, already weaker before Reeves’s Tuesday speech, sank to its lowest since April once she took the podium.
Sterling fell 0.8% to $1.30 and 0.4% to €1.13.
The pound has been under pressure in recent days amid worries over the UK economy and ahead of the Bank of England‘s interest rate decision on Thursday, with another cut seen as being increasingly likely.
The FTSE 100 Index meanwhile fell deeper into the red after the speech, down 1 per cent or 92.5 points lower at 9608.9.
Rachel Winter, a partner at Killik & Co, said: “UK equities are in negative territory following the Chancellor’s speech, suggesting a lack of confidence in the prospects of the UK economy.
“A higher tax burden will mean less discretionary spending and therefore less growth.”
What does it mean for YOUR money?
A fall in the value of sterling is bad news for holidaymakers, who will find they get less travel money at the Foreign Exchange.
Anything you buy abroad will seem more expensive and it can impact what you can afford to do on your holiday.
If, like today, the value of the pound versus the dollar is $1.30/£1 then for every £100 you change up, you get £130 dollars.
You can take some steps to make your travel money go further.
Ordering your cash online in advance will help avoid a last-minute rush at the airport, where the exchange rates are typically much worse.
TravelMoneyMax at moneysavingexpert.com can help you compare rates from different bureaux de change.
Overseas spending cards mean you don’t have to worry about carrying wads of cash, too.
A weaker pound can also impact the value of your pension or any investments you might have.
This is because if you hold shares in a company based overseas, their value is affected by currency movements.
If you notice a dip in the value of your investments, it’s best not to panic or be tempted to sell.
Tax rises on the horizon in bumper Budget
By Jack Elsom, Political Editor
RACHEL Reeves wants everyone to know she is about to whack up taxes, without actually saying so.
Masking her intentions in fluff, she talked about everyone “having to contribute” and that “each of us must do our bit”.
Translation: I know I said I wasn’t going to come back for any more of your money, but actually now I am.
The only thing that remains to be seen is whether she tinkers with lots of little taxes, or presses the manifesto-busting nuclear button of income tax hikes.
The kicker came after a long preamble that blamed everyone from the state of the nation’s finances but herself.
She rightly identified our crippling national debt as a ticking timebomb that must be tackled.
But our debt mound was just as eye-watering at the last election, which Labour won by promising not to drastically increase taxes.
She didn’t just find £2.7trillion of debt down the back of the Treasury sofa when she became Chancellor last year.
So her talk this morning about needing to act in the national – not political – interest risks rubbing a bit rough with those who took Labour at their word on July 4.
Not least because she told us after last year’s £40billion tax raid that she had “wiped the slate clean” and would not be coming back for seconds.
Yet even today Reeves insisted she has “fixed the foundations” of the economy… all while buttering us up for more pain in a few weeks.
It is an almighty political gamble for a Chancellor who is already historically unpopular in the polls.
She is wagering that the public accept that she made her previous promises in good faith and has now been forced to u-turn at their expense.
It is a very, very hard story to sell to a nation quickly losing trust.
