A sign of the times: I woke up yesterday to headlines that chancellor Rachel Reeves had U-turned on her income tax plans, and I wasn’t immediately clear whether this was official confirmation that income tax rates were to rise, or whether Reeves was U-turning on the only just rumoured U-turn to hike rates after Labour had pledged to do no such thing.
Is everyone following at the back?
What a palaver. As you probably know by now, it was the latter – a U-turn of the U-turn. Or as boy racers would call it: a doughnut. Which seems appropriate.
Officially, Reeves’ 360 had nothing to do with all the briefings and counter-briefings that gripped Whitehall watchers this week.
Rather, the Office for Budget Responsibility (OBR) has thrown her a lifeline.
Newer assessments from the OBR appear to have increased the projected strength of wages and tax receipts in the coming years and offset several billion pounds of that gap, taking it closer to £20bn.
Gilts yields rose as traders panicked at Reeves chickening out over income tax hikes, and they barely calmed down when they heard the OBR had plumbed the depths of the black hole and found it less black than first feared.
Extra taxes will still have to be found from somewhere. Even £20bn is not chump change, especially when you’re also planning to scrap the limits on child benefit and potentially looking to top-up those WASPI pensions after all.
Someone’s money will have to be found to pay for it:
Putting income tax thresholds into an even deeper freeze is leading the runners and riders this week, along with curbs on salary sacrifice. But mucking about with the pension tax-free lump sum is reportedly now off the table.
Still ten days to go though punters! Place your bets.
Where’s the money, Lebowski?
As if the on/off vibes from Budget Bingo weren’t déjà vu enough, we also got the latest account of the economic damage wrought by Brexit to remind us of why we’re partly in this mess.
These estimates suggest that by 2025, Brexit had reduced UK GDP by 6% to 8%, with the impact accumulating gradually over time.
We estimate that investment was reduced by between 12% and 18%, employment by 3% to 4% and productivity by 3% to 4%.
These large negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process.
Not surprisingly – given there’s no economic benefit to leaving a vast trade bloc that other countries lobby for decades to enter, to replicating its bodies and functions, to becoming a rule taker, to creating friction for business, and to making investment into the UK less attractive – the estimate of the cumulative damage from Brexit has crept up on those made last year by the likes of Goldman Sachs and the OBR.
What’s the relevance to the budget?
Let’s take the NBER’s lower 6% hit-to-GDP estimate. UK GDP in 2024 is estimated at £2.88tn, so the NBER sees the economy as £173bn smaller than it would otherwise have been without the drag from Brexit.
At about a 39% tax take as per the House of Commons library, that implies the state has about £67bn less to spend than in the no-Brexit alternate universe.
Even at a lower 35% take there’s a £60bn shortfall.
Of course you can debate how precisely we can layer on this speculation. But I’m not taking the highest estimates here – and the point is the overall picture.
Which is that the UK government has tens of billions less to spend than it would have had, and that it likely needs to spend more too than in a Remain scenario, given Brexit’s hits to the economy as outlined by the NBER will have increased the various claims on benefits.
A boondogle with a bill that’s come due
Of course the Leave campaign warned us that long-term economic damage was the price we’d pay for the UK regaining our (technical) sovereignty.
A smaller economy than originally projected due to Brexit would present difficult choices about where we directed our spending after leaving the EU. The economic cost was plain – everyone predicted it – but the political argument carried the day with brave Britons.
Ho ho ho.
Of course they literally said we could have our cake and eat it. So now they are surprised when we’re running the economy based on the old inputs and we’re coming up short.
Brexit will carry on bleeding us out for another decade, I’d guess. Perhaps after that some compensatory factors will see things finally stabilise, as the Bank of England governor mused last month.
In 2016 I said Brexit would be a slow puncture that would hinder us for many years. My critics told me to shut up.
On we trundle.
Lies, damned lies, and the 52%
If you don’t discern the dead hand of Brexit – along with Covid, inflation, and Russia’s war of course – when looking at semi-stagnant out-of-puff Britain limping along with only these occasional bunfights over our shrunken tax pie to liven things up then I won’t persuade you.
Sure, the NBER report is the result of exhaustive work by big brains from Stanford, The Bank of England, and the Bundesbank among others.
And yes it tallies with what other studies have shown.
But hey, you’ve got a bloke on social media with three Union Jacks in his profile who can’t write complete sentences saying:
“LOL.. coz they can see the future yeah!! get over it pal! ✊“
Feel free to pick your side.
Just remember later this month when you’re set to pay more tax or the triple-lock pension is unpicked1 that we were told this would happen, 52% voted for it, and we’re living with the result that the decision deserves.
And if you still don’t understand why I belabour this, here’s an article from The Telegraph via Yahoo on how “Britain faces worst decade for growth in a century”.
There’s no mention of Brexit from start to finish. Not even a nod.
It was one thing to be earnestly wrong in 2016. It’s another to stay wrong in 2025.
Thanks for reading! Monevator is a spiffing blog about making, saving, and investing money. Please do sign-up to get our latest posts by email for free. Find us on Twitter and Facebook. Or peruse a few of our best articles.
Back in early spring, I wrote a couple of articles for members exploring the pros and cons of beaten-up infrastructure investment trusts like HICL (LSE: HICL).
All the listed infrastructure trusts sat on big premiums to net asset values (NAVs) before the 2022-2023 interest rate hikes.
Investors valued them for their chunky dividends in the depths of the near-zero rate era. They’d bid up the trust’s prices versus NAVs, which depressed the yields1. But the yields on offer were still attractive to many, though not to me. (Not on a 20-30% premium to NAV!)
As interest rates rose, however, those premiums wilted.
Eventually the trusts were trading on 20-30% discounts. In most cases the dividend payments were at least held, so at least the income kept coming through.
Superficially all that had changed is investors wouldn’t pay a premium for income anymore. They wanted a discount, which boosted the yield for new money to 10% or more.
Canada comes calling
That situation unfolded over a couple of years. But my dives into infrastructure in early 2025 were prompted by something more immediate – an unexpected bid approach. One of the sector’s top trusts, BBGI, was taken out by a Canadian pension fund at very close to NAV.
Given that BBGI had swung from a 40% premium (!) to a 20% discount before the bid, the takeover price implied three things:
An institutional-grade player saw BBGI’s quoted NAV of as accurate
The NAVs of the remaining listed trusts might also be be pretty trustworthy
Other bid approaches could unlock value for holders
It seemed a pretty good set-up. When I wrote my piece about it in early March, HICL, for instance was yielding 7.5%, just covered by income. So you were being paid to wait. Either for a recovery for the sector – probably with rate cuts – or for more takeover bids.
While higher yields have increased discount rates and pressured asset prices, both HICL’s disposals and BBGI’s acquisition point to robust underlying valuations.
Adding to the case are the investment qualities of infrastructure that I discussed last time.
To which we might add that they aren’t big US tech shares trading on all-time frothy multiples!
I wouldn’t go crazy loading up on infrastructure, even in deaccumulation mode. But I do think a 5-10% allocation on today’s discounts makes sense, and I’m working towards the lower figure myself.
I’m not sure the trusts will beat the market over the next five years. But the high dividends will surely smooth the ride.
So far HICL has done okay. By summer the return after that Moguls piece was about 20% (including dividends) but it’s slipped back. I still hold, shuffling my position size up and down as I often do.
However I’m not here today to do a post-mortem on that infrastructure trust.
Rather I want to flag up the ones I deliberately avoided. The renewable trusts.
What’s wrong with renewable infrastructure?
In comments to my first article, readers asked about renewable trusts.
It would be hindsight to say I had a strongly bearish thesis about them. But I did note:
I agree with you about renewables in terms of the potential opportunity, but the risks are a lot greater too IMHO.
The truth was – and is – that renewable investment trusts give me the willies. While I have held them for brief periods, I’ve invariably soon gotten out again.
For what it’s worth, my gut instinct has been vindicated in 2025 by the share prices:
Source: Google Finance
These are year-to-date returns. Clearly you’d rather not have woken up on January 1 burning with a New Year’s Resolution to load up on infrastructure! (Except for BBGI…)
The returns would be less lousy with dividends, but the renewable trusts (Tickers: TRIG, BSIF, and UKW) would still be well underwater.
We can probably explain the overall weak returns with some handwaving about inflation and interest rates being higher for longer than expected, and perhaps greater political risk. I won’t rehash my member posts today.
But why the sharp divergence between infrastructure and renewables?
Renewable infrastructure trusts under the hammer
On the face of it, these infrastructure trusts all offer the same sort of thing. Upfront exposure to assets – which can be contracts to clean hospitals or fix nuclear reactors, not just physical stuff like wind turbines – in return for a stream of income over time.
Sometimes the income is linked to inflation, or to other pricing mechanisms. Also note that certain assets have a definitely fixed life (contracts, for instance) whereas others, with good care, could last indefinitely (say a bridge or port). All that affects how their NAVs are calculated.
Again, this post is just flagging up that stark divergence. I can’t get into analysing the many thousands of different assets and contracts held across all the trusts.
But that’s fine because the clear split in 2025 is between general infrastructure and renewable trusts. It suggests something broad strokes is going on.
Here are a few hypothesis (or guesses) which lean into those willies I’ve long had about the sector.
The renewable infrastructure trust business model is broken
There have always been questions about the long-term investment case for renewable energy trusts – and infrastructure more generally. About everything from fees, opacity, accountability, and business models to discount rates and technology risk.
The list goes on. But one oldie that has now come to a head is ongoing funding.
Long story short, renewable trusts used to issue shares at premiums to NAV to (in theory) invest in new assets and (less agreeably) to top-up or backstop their income.
Issuing shares at a big premium is in itself value-accretive. It can turn £1 of new money into, say, £1.20. Just by virtue of it moving on to a trust’s balance sheet!
Renewables needed to be able to issue shares like this long-term because they are not structured as finite life vehicles, and they are (or at least were) not priced as such.
But maybe they should have been. Because now that discounts are sky-high, nobody wants to buy newly-issued shares at NAV, let alone a premium.
We can debate about how long their assets – rusting windmills, ever less-efficient solar panels – will last. But even with build cost inflation, I don’t see anyone arguing that they are getting more valuable.
Moreover some argue the trusts have not made proper provision for decommissioning. Absent the coming of nuclear fusion or the like, I’d presume an existing and permitted renewable installation is more likely to be maintained or replaced than decommissioned. But it’s a valid line of inquiry.
I was worried about funding for many years. (Monevator writer Finumus flagged the issue on his old site five years ago!) But it’s no longer merely a theoretical risk.
This month Bluefield Solar Income Fund (LSE: BFSIF) called it out as the reason it was putting itself up for sale, noting:
BSIF’s shares have traded at a persistent discount to NAV for over three years, limiting access to equity markets and constraining growth.
Earnings have been directed toward dividends rather than reinvestment, leaving the Company unable to fully benefit from its platform, proprietary pipeline and growth potential.
Without fresh capital, BSIF can’t grow without cutting its high dividends. And as income is the reason shareholders own this trust, that’s not an option.
BSIF has substantial assets. It trades on a 36% discount. You’d hope some institution will pay more than that to own them.
But the listed trust game is clearly up in today’s climate.
The renewable energy business model is in doubt
These funding issues are probably the main reason renewable trusts are languishing.
It’s a vicious loop. The worse the discounts get, the less likely they’ll ever trade even at par again. This makes them even less attractive, and prompts more selling and still-higher discounts.
By now I’d guess they are priced at the market’s best estimate of takeover value.
However this is a bit of a tautology. It doesn’t tell us why they cratered to deep discounts in the first place.
Besides all the wider drivers for infrastructure discounts that I listed above, could the investment case for renewable energy specifically be in doubt?
I think not… but also yes.
Some 97% of scientists agree that humans are warming the Earth by burning fossil fuels. This is causing climate change. So the push to emit less carbon via using more renewables is intact.
That’s true even as anti-scientific denialism in the White House has hamstrung the US.
The International Energy Agency just forecast that renewables will become the largest global electricity source by 2030, accounting for nearly 45% of production.
But the world hasn’t all gone full Greta Thunberg. It’s down to economics:
Unfortunately, we poor strivers must invest in vehicles that invest in renewable assets, not in the assets themselves. Let alone in spreadsheet maths! And this brings those high fees and so forth back into the picture – as well as issues like adverse selection due to the capital constraints and predictable income needs of renewable trusts compared to other players.
Moreover, the goalposts keep shifting.
Notice renewable trusts are struggling even as critics blame the UK’s ‘quixotic’ power-pricing mechanism – and the push to Net Zero – for our high electricity prices. If someone is making out like a bandit, it isn’t these trusts!
Nevertheless the government has announced it’s looking at the incentive regime – Renewable Obligation Certificates (ROCs) and Feed-in Tariffs (FiTs) – that was put in place to encourage more renewable installation.
Sticking with BSIF, the trust recently said the government’s proposals would cut the average annual household bill by £4 to £13, depending on exactly what changes are implemented.
However BSIF estimates the resultant hit to its NAV to range from 2% to a whopping 10%!
Whatever the ultimate damage, it can only make renewable trusts less attractive.
Political risk
I’ve noted above that Donald Trump’s administration is defying the entire scientific consensus with its stance on global warming, and with the actions it has encouraged in response.
The results so far are mixed. Even some fossil fuel leaders are aghast (if only because of the policy uncertainty). But it does seem to have amped up new oil exploration at the margin and it has hit forecasts for US renewable installation:
Meanwhile the man who brought us Brexit – you know, that great opportunity that’s costing us £100bn a year in lost GDP, that saw immigration of nearly a million arrivals in 2024, and that deleted your birthright to live in 27 other countries – has now turned his talents to decrying Net Zero and renewable energy.
Reform says it will scrap Net Zero targets and cut subsidies. It’s warned industry to stop working on new projects. All damaging stuff in the short and long-term. Yet Reform’s lead in the polls probably drove Labour’s mooted incentive changes.
It’s distasteful for me to even talk about this. It’s pure Barry Blimpism – literally tilting at windmills.
We probably should look soberly at the high cost of UK electricity, but not through this scaremongering and scapegoating. That’s populism for you.
Needless to say it doesn’t make investing in renewable trusts any more attractive. Unless maybe you think their assets will become more valuable if new investment dries up, reducing supply?
Dark, but I suppose possible given the economics. The market doesn’t see it though.
Weather risk
The UK wasn’t very windy in the first half of 2025. On the other hand it hasn’t been especially cloudy.
I’m inclined to dismiss this concern because while I certainly believe in climate change, I don’t think it’s changed sufficiently in a couple of years to hammer the case for these trusts versus prior assumptions.
Higher inflation
You might point to higher maintenance costs for installed renewable energy due to all the inflation we’ve seen since 2022.
But this shouldn’t have hit renewables much harder than wider infrastructure, so again I don’t see it.
The market just doesn’t care about listed infrastructure
With all this said maybe the divergence between vanilla and renewable infrastructure in 2025 is a red herring? Perhaps investors (/the market) remain very ambivalent about all these alternative assets?
The takeover for BGGI perked up demand for its direct peers, but that has mostly unwound. The enthusiasm we saw for the likes of HICL in the first-half of the year has gone.
As I type HICL is on a discount to NAV of c.24% again. INPP is on a 17% discount.
Smaller discounts than those of the renewables trusts, true, but still plenty big.
Into the too-hard pile
Of course the explanation is likely a combination of all these factors:
Ongoing higher yields snuffed the recovery across the infrastructure sector.
Growing political risk makes betting on any government-influenced income streams riskier.
Persistent discounts imperil the business models of all the infrastructure trusts.
Takeover hopes have dissipated.
On all of these counts, renewables fare worse.
Corporate activity has been more lacklustre – for example Downing Renewables was acquired at a 7.5% discount in June, versus BBGI going at par – and renewables look at far greater risk from a Farage-led backlash. Difficult-to-fathom and often unintuitive power contracts make them harder for analysts to value. And the bigger discounts that result from all this make the prospect of them ever raising new money seem remote.
Given my environmental concerns, I should be a natural investor in these trusts. But I avoided them when on premiums, and even with discounts I haven’t held bar a small position I had in early 2025. I’m in no rush to go back.
Things do change. It’s not impossible all the issues could be resolved to make the trusts a bargain.
But to me, the challenges look more structural than cyclical. Why take the bet? Plenty of established closed-end stuff in the UK – income trusts, private equity and VC, property – looks reasonably priced, without so much existential risk.
It’s raining in London as I type, but I’m confident sunny days will come again.
However I just can’t say the same about renewable infrastructure trusts.
I know some Monevator readers were keen on these trusts. Do you still hold them? I’d love to hear more in the comments below.
For MAVENS and MOGULS byThe AccumulatoronNovember 11, 2025
What if I told you that the CAPE ratio1 predicted just 25% of the variation in 10-year returns for the S&P 500. Would you be so worried about sky-high US valuations?
Right now the stock market’s best-known valuation gauge is at boiling point – it’s mercury having climbed into the 99th percentile of historical values.
This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.
We’re at the point now where about the only potential tax hike that hasn’t been run past the committee of public opinion is a revival of the 200-year old window tax.
Don’t laugh! It could be a real revenue spinner in our era of skyscrapers in the City and bifold doors in the suburbs.
In the meantime, a rise in income taxes in the upcoming Budget seems to finally be – maybe – on the agenda.
Yes, those same higher income taxes that were ruled out ahead of the last election.
I have my doubts, but who knows. Perhaps Rachel Reeves and Keir Starmer believe the situation really is dire enough to warrant breaking the pledge? It’s already motived them to lift their silence on the £100bn hit to the economy – and the resulting black-hole-sized £40bn shortfall in state revenues – that Brexit has cost us.
Or maybe Labour thinks they might as well be hanged for a sheep as a lamb, considering the kicking they got anyway for dancing around taxes on ‘working people’ with the last budget?
Or maybe it’s just another ill-advised attempt to scare us with a worst-case scenario so that the real medicine doesn’t taste so bad.
We’ll find out on 26 November. But hell will hath no fury like the voting public if income tax rates rise by a bald 2p in the pound without a ‘sterilising’ 2p cut in National Insurance – which would undo much of the revenue-raising potential anyway.
And cutting national insurance won’t help the legions of vote-happy pensioners…
A stitch in time
I happen to believe that from a bunch of very unpalatable options, just hiking the basic rate of income tax and getting on with it wouldn’t be the worst.
But that would be partially on the grounds that it’s such a game-changer that it could have quashed the rumours and uncertainty caused by chipping away at absolutely everything else – from pensions, ISAs, dividends, and capital gains to property and the rest – to the sidelines.
However we’ve already had another three or four months of uncertainty. It’s made people save more, spend less, dither about moving house, and thrown yet more sand into the wheels of our lacklustre economy.
Worse, we’ve already had last year’s employer’s NI hike. Which had exactly the effect everyone predicted it would on youth employment, and on the health of the hospitality sector too.
If a bandaid was going to be ripped off then 2024 was surely the better time to go for it.
Rumour treadmill
Here’s a flavour of this week’s speculation:
Chancellor refuses to rule out manifesto-breaking tax hikes – Sky
NIESR: hike income tax by 2-10p in the pound – This Is Money
How much would a 2p income tax rise cost you? – Which
But that’s just a taste. I’ve run batches of budget speculation in these links for weeks, so thick and fast and indiscriminate have they come.
Of course what’s notably missing from most of the rumour-mongering is anything about spending cuts. I’ve probably read more about the two-child benefit cap being lifted – which will obviously cost yet more money – than on any mooted plans to curb spending.
It’s true the last round of so-called austerity under George Osborne didn’t do much for the UK. And perhaps it’s senseless to look to downsize government – or at least to stop it growing further – while the economy is only limping along.
But is this a different era? Rates are taking their time to fall, and we’ve borrowed much more money. There’s a growing feeling that we’re sleepwalking into a self-fulfilling prophecy.
I used to look forward to budgets. But I honestly just want this one to be over.
