Economy

There was a very big hole in the Chancellor John Healey’s claim yesterday that he is going to generate a new age of industry. Why would anyone want to open a factory, or any other kind of industrial plant, in Britain when they would be paying far more for their energy than in other countries? UK non-domestic customers paid an average of 26.63 pence per kilowatt-hour for their electricity in 2024, more than any other member state of the International Energy Agency (IEA) and 60 per cent more than the IEA average. It is little wonder that our chemical plants, oil refineries and many other industries are rapidly leaving our shores in the search for cheaper power. But worry not, the government has a plan, or two plans.

The Conservatives have had a change of fortune of late. With the latest YouGov polls suggesting that the Tories have pulled neck-and-neck with Reform, even the most sceptical must acknowledge there has been a 'Kemi bounce'. PMQs is often touted by SW1ers as a cause of this, but having Starmer, and now Burnham, it is hard to suggest Badenoch’s shooting at anything but an open goal. Instead, I would put it down to a good reshuffle and, importantly, to good policy announcements. The abolition of stamp duty and inheritance tax will have undoubtedly endeared the party with their traditional voters concerned with whether to pivot towards their teal-coloured competitors. Shadow work and pensions secretary Helen Whately’s latest policy announcement certainly fits this trend.

Behind the scenes of The Spectator’s wealth tax debate this month there were lots of nervous whispers. ‘Wealthy people we work with are absolutely terrified about an exit tax,’ one Westminster figure remarked. The economist Arthur Laffer, one of the debate’s speakers, couldn’t believe a wealth tax was even being considered. Britain is already near the top of his famous curve – the point beyond which taxation reduces the Treasury’s take – and seems determined to push things to destruction. The latest fiscal rumour – that we might seize millions on a wealthy migrant’s departure – is a dangerous one. According to reports, it’s also the reason Chris Rokos, the third-highest taxpayer on the Sunday Times tax list, has decided to leave for Greece.

Five weeks out from his first Budget, John Healey is scrambling to make the numbers add up. Figures just released by the Office for National Statistics (ONS) show the government borrowed £18.3 billion in August, making it the second highest August on record behind 2020. It was also £3.5 billion over the Office for Budget Responsibility’s (OBR) forecast for the month. ‘Spending increased more than government income from taxes… partly reflecting the impacts of inflation’, the ONS said, with borrowing for August up £2.9 billion (19 per cent) compared with last year. What’s worse is this borrowing increase came despite an increase in tax receipts, which are £2.5 billion higher than a year ago, with income tax revenue up 6.6 per cent.

Appointments to the shadow cabinet recall Ernest Shackleton’s job advert to cross the Antarctic. ‘Men wanted for hazardous journey, small wages, bitter cold, long months of complete darkness, constant danger.’ One of those brave – or foolhardy – enough to sign up for Kemi Badenoch’s top team was Andrew Griffith, last month named the new shadow chancellor. Griffith is a successful businessman, ex-Treasury minister and can boast of being the only ex-FTSE100 boss currently serving in the Commons. With a Budget looming in six weeks’ time, this morning he made his first big speech in the role. Griffith opted to play it safe in his first outing, speaking at the Capital City College Group in Tottenham to talk tax, jobs and small businesses.

Will Labour’s ‘visitor levy’ generate £52 million of revenue for public spending in York and North Yorkshire, as a House of Commons briefing suggests? Or will it deter holidaymakers from exploring the region I love – and every other English destination where the levy is applied – while piling adversity on a hospitality trade already caned by employment cost hikes and tight consumer wallets? Modelling by the Tax Policy Associates thinktank offers a central estimate that the proposed tax on overnight stays (at up to 5 per cent, as set by local authorities) could raise £603 million a year for the loss of 5.8 million room-nights and £689 million in overall visitor spending, roughly half from overseas.

Britain is in a wage spiral – though not a traditional one. Instead, job and wage growth is surging in the public sector while the private sector struggles. Unions put pressure on the government because of the cost of living, Labour grants pay rises, the cycle continues and a dwindling private sector picks up the bill. Figures just released by the Office for National Statistics (ONS) show that while private sector wage growth in the three months to July was flat at 2.9 per cent, it grew to 6.3 per cent in the public sector. Statisticians continue to insist that this is partly a ‘base effect’ whereby the timing of public sector pay rises occurred earlier than normal, but this explanation has been used for so long it is no longer credible.

Once again, ahead of a Budget, all the talk is of headroom and how much of a buffer John Healey will have before bumping up against the government’s fiscal rules. In March, the Office for Budget Responsibility put the headroom – the margin that lets the government spend a little more, or have a weaker-than-expected economy without having to raise taxes or cut spending – at £23.6 billion. Since then, the government’s cost of borrowing has soared as investors have dumped government debt. That means the government’s interest costs will rise, and that extra interest cuts the Chancellor’s headroom.