What caught my eye this week.
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.
According to the BBC:
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:
Source: JP Morgan / Chancery Lane
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.
To quote the abstract to the new working paper from the NBER:
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.
Have a great weekend!
From Monevator
Why you can’t trust the CAPE ratio [Members] – Monevator
End in sight for renewable trusts? – Monevator
From the archive-ator: What’s your financial origin story? – Monevator
News
Extending the income tax threshold freeze to 2030 raises £8.3bn extra a year – I.F.S.
NS&I Digital revamp is four years late and £1.3bn over budget – This Is Money
FCA doubles down on AI testing versus regulation… – City AM
…and warns CFD firms against failing consumers – Reuters
NHS gets go-ahead to cut thousands of admin jobs – BBC
A technocratic plan for Eurozone growth… – The Constitution of Innovation
…and also note the EU is actually a pretty good investor – Klement on Investing
Products and services
Disclosure: Links to platforms may be affiliate links, where we may earn a commission. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.
Hargreaves Lansdown launches a new best buy ISA paying 4.55% – This Is Money
Five major mortgage lenders cut rates – This Is Money
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Santander’s new £200 switch offer – Be Clever With Your Cash
Royal Mint launches yellow gold sovereigns for £1,200 – This Is Money
The cost of car insurance is falling lately – Which
Get up to £200 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
How to get discounted gift cards – Be Clever With Your Cash
The loveliest towns to retire to in Britain – House & Garden
Homes for sale in former warehouses, in pictures – Guardian
Comment and opinion
The joy of giving up on having ‘enough’ – The Root of All
How a former hedge fund titan learned to invest with humility – Excess Returns
Bull market brains – A Wealth of Common Sense
How to earn £250 a day as a film or TV extra – Guardian
We don’t bury our dead – Fortunes & Frictions
‘Total portfolio approach’ could shake up asset allocation – Bloomberg via A.P.
Why everyday investors should stay away from private markets – CFA Institute
A golden year – Musings on Markets
Your time isn’t worth shit – The Falling Knife
Be a nerd – Financial Samurai
Warren Buffett’s Thanksgiving letter [PDF] – Berkshire Hathaway
Naughty corner: Active antics
Beware booming brokers in a bubble – Arcadian
Hedging AI bubble risk via Oracle CDS [My read, anyway] – Mind of Mojo
The case for business stewardship – Flyover Stocks
A poker pro turned quant explains trading [Video] – via YouTube
How to capture Japan’s value unlock – Verdad
Capital allocation [PDF] – Morgan Stanley
Kindle book bargains
Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle
The Man Who Solved the Market by Gregory Zuckerman – £0.99 on Kindle
Chip War by Chris Miller – £0.99 on Kindle
Meltdown: The Collapse of Credit Suisse by Duncan Mavin – £0.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator shop
Environmental factors
IEA: supply boom in renewables will end the fossil fuel era – Guardian
Millions of Australians to receive free electricity thanks to solar – TechCrunch
London congestion charge to rise to 20% and apply to EVs for first time – Autocar
Southern Water says sorry after millions of plastic beads pollute beach – BBC
Conservation projects falter as rich countries retreat from climate fight – Observer
Nature reserve uses new bird protection on windows – BBC
Robot overlord roundup
Big Short’s Michael Burry has some concerns about AI accounting – CNBC
The Slop cycle: media revolutions breed rubbish and art – Scientific American
DeepMind cracks a centuries-old physics problem with AI – Business Insider
Yes, it’s a bubble – SpyGlass
AI will transform the entertainment industry in a decade – Institutional Investor
When will we make god? – Uncharted Territories
From AI to ROI: some positive evidence [Paywall] – FT
Not at the dinner table
UK to limit refugees to temporary stays – BBC
Trump is set to sue the BBC – Sky
Fox to BBC: hold my pint – ProPublica
The last of the Old West – Money with Katie
Reform’s pretty quiet since Labour began exploring Danish immigration model – Sky
Musk’s trillion-dollar compensation – The Lefsetz Letter
Off our beat
The monks in the casino – Derek Thompson
Space food made from astronaut pee to be tested on ISS – Independent
Investor’s ‘dumb trans-humanist ideas’ setting back neurotech progress – Guardian
D&D and racism [2021 called and wants its culture war back!] – The Atlantic
Why do people love spicy food, even when it hurts to eat it? – Guardian
Scientists find surprise link between grey hair and cancer – Independent
Humanity is depopulating itself – London Review of Books
Why don’t people return their shopping carts? – Behavioural Scientist
The governance-industrial complex – 3652 Days
And finally…
“You may know that the Chinese word for ‘crisis’ is made up of two symbols, one of which can signify ‘opportunity’.”
– Andrew Craig, How to Own the World
Like these links? Subscribe to get them every Saturday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.
- Haha, only kidding! [↩]
Before the usual 3-4 suspects rush in to tell me what I’m allowed to write about on my website, here’s a pre-emptive response as to why Brexit again:
1) The NBER report was published just this week, and it meaningfully updates our understanding of the economic cost of Brexit.
2) Many Leavers, politicians, and especially the right-wing press that championed Brexit refuse to acknowledge its economic harm *at all*. Until it is factored into the everyday conversation about Britain’s fiscal plight – or, maybe, another ten years has passed – I’ll continue to suffer the burdensome task of trying to provide some small balance.
3) My taxes will go up this month because of your economically dumb decision. Own it.
4) You don’t have to read it. Feel free to skip to the links, or just take this website off your reading list if reality offends you that much. No hard feelings! 🙂
Looking forward to the comments on this one, should be entertaining. Do you keep a track of the prevalence of the Cassandra index over time on these responses @TI?
JimJim
@TI #1 Dude, logic does not trump emotion 🙁 They socked it to the technocrats, and felt better for it.
@ermine — I know, I know. But I don’t want mainstream readers who are understandably fed up with the subject to let Brexit off the hook. The Telegraph etc is fighting a phoney war. Things would not be great if we’d voted to Remain – still Covid, still Russia/Ukraine, still inflation – but they wouldn’t be quite so immediately desperate. So let’s talk about what’s really happened, especially as I’ve noted many times with Farage actually leading the polls!
@JimJim — Not sure what the Cassandra index is. But among several of my hard-suffering friends, it’s a nickname for me out of acknowledgement of my (dubious) gift of looking forward successfully, persuading few people at the time, then bemoaning it later when nobody cares when things turned out as predicted. (Brexit is far from my only rodeo).
I’m not prescient or anything like that, but if I have any skill as an investor besides pattern-matching it’s an ability to extrapolate forward and to not let go of the bone. 🙂
So after the Greta Thunberg fanboy post earlier in the week we now have the Remainer post, that seems to have been written whilst wearing a pair of EU rose tinted spectacles.
I get many of the points you raise, but you are raising them in isolation, which is a simplistic approach people have taken on both sides of the Brexit argument.
Approaching it from a true geo-political medium to long term approach using both micro and macro economic approaches, with a heavy dose of Austrian thrown in for good measure, makes these arguments so much more complex than you are making them out to be.
Yes, if you believe the mainstream media (most of whom were Remainer leaning) you will believe the numbers in isolation, but dig deeper … much deeper.
It is the same with when you came up with that old chestnut of ‘97% of climate scientists’ nonsense. Most well read readers will know that there is much more to that figure, but you seem to have just gone with the MSM rhetoric and not dug any deeper.
I LOVE the investment advice on here, but from a geopolitical bigger world perspective, you seem to have very naive views that just parrot whatever the MSM says, and doesn’t seem to comprehend the bigger picture.
You know the BBC lied in a HUGE way about Jan 6th. It doesn’t matter if you are a Trump fan or not (I’m not), but it is undeniable that the BBC lied in a MASSIVE and deliberate way. Well, do you seriously think that everything else they report is true? The MSM has been playing the British public for years, but people are waking up and realising that just because the MSM says it, doesn’t automatically make it true – and that counts for Brexit, Trump, immigration, Europe, Ukraine … everything.
As I say, I absolutely LOVE and appreciate this amazing resource from an investment perspective. It is amazing, but from a geopolitical perspective, and issues such as climate and the EU, I feel you need to broaden your sources, as your points are clearly just an echo of the same talking points the MSM has been promoting ever since 2016, with very little variation.
…UK GDP in 2024 is estimated at £2.88bn… surely you mean Trillion.
“UK GDP in 2024 is estimated at £2.88bn”
I hope you mean £2.88trn, otherwise we are in worse trouble!
@Barn Owl @Jon — Ugh, where were you before I sent the email! *blush* Thanks!
@Fred — You are on non-constructive Troll-watch. Some people will think this is an over-reaction but I have over three decades of experience with this.
e.g. You are going on about the BBC when I quoted the NBER report and data. You are prattling on about January 6 and media conspiracies. You are accusing me of over-simplicity while offering nothing but social media agitator prattle. You are throwing me a bone about admiring the investment stuff on here (thanks) while telling me what to read, when I read more broadly than almost everyone I know and you just have Twitter soundbites.
Constructive points about the efficacy of the NBER report or how we can actually bring Brexit into the debate without it being futile and backwards looking are welcome.
But you are hovering by the auto-delete door. If you/people don’t like it there are other sites to read. This is a benign dicatorship.
Cheers!
David Allen Green (an actual lawyer) had a very informative look at the Trump / BBC spat. Although he does only concentrate on this from the point of view of UK law so if the BBC is really being sued in Florida then things might be different:
https://emptycity.substack.com/p/a-close-look-at-trumps-1-billion
Thanks for the links, as ever, TI.
I would not want to be Rachel. What the OBR giveth, the OBR can taketh away. And it does rather start to look like there isn’t a long term thesis and honestly not putting up taxes is starting to look like stubbornness and justifying it as unnecessary is starting to look like lying. I suppose cutting costs would be too much to hope for.
Trouble with pointing out that your predecessors are intellectual pygmies is that you then have to stand on their shoulders instead of those of giants.
Enjoyed the post from Falling Knife this week. The productive hour does seem more and more like the myth. However I’ve recently looked into a hobby of arm-wrestling AI (and getting paid a bounty when I train/defeat it) and it’s quite refreshing to have an absolute dollar value on an hour spent on an intruiging problem vs some other task.
Think this would be of interest for this weeks round up – Dan Neidle has put together an excellent calculator where you can model the impact of different income tax proposals – and see the impact on marginal rates: https://taxpolicy.org.uk/2025/11/12/the-budget-2025-tax-calculator/
Followed up with a Twitter thread showing the hundreds of thousands of people who have avoided the marginal rates by reducing their hours, forgoing promotions, stuffing pensions and/or employing as many salary sacrifice schemes as possible:
https://x.com/DanNeidle/status/1989312760052674697?s=20
If the treasury are interested in working out where the productivity gap is, surely this is the place to start?
Hi TIm thanks for the article.
On Brexit, I voted remain, somewhat reluctantly and was taken aback by the result. Like a lot of people, including the BBC, I didn’t read the room.
It wasn’t primarily an economic decision ( member sovereignty?). The economic justifications were an enabler which allowed people to overcome their reservations and vote leave.
The economic consequences were never going to be good but there is an argument to be made that our subsequent management of the leave process made matters worse. They were conducted by people who resented the leave vote.
A reasonable argument could be made that the wishes of the people were betrayed.
There is a danger that we continue to misread the room….look at the support for Reform.
The complacency that led up to the leave vote ( a vote that was lost more than it was won) is being repeated.
Rather than tell people they are wrong, do something to address their concerns. It is a problem rooted in the nature of a democracy.
As for RR…why on earth did she make that impromptu speech earlier in the week trailing a rise in income tax??
This is an omnishambles. Add this misstep to her weeping episode and I think it can confidently be said that this will be her last budget.
For my own part I worry the smorgasbord of measures we might now face means next week will see me selling down financial stocks and lobbing yet more cash over the iht wall.
You can chose your own truth, but you can’t chose your own facts.
And as @TI summarises so well above, in economic terms, those facts are clear. Brexit is a disaster.
You’re free to say that the price was indeed very high, but still worth it (for the purpose of your values – e g. sovereignty etc), but you can’t deny the price.
@old_eyes #35, in the thread to the last post of Renewables ITs, puts it best IMHO:
https://monevator.com/end-in-sight-for-renewable-infrastructure-trusts/#comment-1920538
“……you have to do the work to show the flaws in the accepted arguments and show how your explanations of the observed facts are better. “I don’t like the answer” is not a good argument.”
On the budget, bitterly disappointed doesn’t get close to my feelings on Starmer and Reeves. I did vote Labour out of revulsion at what the Conservatives have become, but the PM (and Reeves as well) really do seem like complete amateur politicians.
If there were 10 units of flack to be had for raising IT and 1 unit of flack each for the 50 smaller tax rises needed for the same effect, then RR has now gone and suffered 4 units of flack already just for putting IT increases into the spotlight and then double U turning on it, and then still has to face those same 50 units of flack.
And I thought people at the Treasury could do maths.
I would prefer, rather than having increasingly forensic reviews of the foot and the shotgun damage we inflicted, to have surgeons in charge who could at least mend the foot so that we might begin to hobble, with hope that we may get to a decent walking pace soon. The shot was fired, we can never go back to what we had.