Growth has stagnated and is falling on a per capita basis. Job vacancies are in free fall. Inflation is rising again, making it harder for the Bank of England to cut interest rates, and taxes are still going up. You might think the state of the British economy could not get much worse. You would be wrong. In The Waste Land, T.S. Eliot says that “April is the cruellest month”. It certainly looks like it will be for chancellor Rachel Reeves.
Companies face four blows. First, the rise in employers’ national insurance (NI) will come into effect. We have already seen a sharp fall in job vacancies, and plenty of big companies have said they will have to make redundancies to cope with the extra tax. And that is before it has even come into effect. Once the extra bill has to be paid, we will see the real impact, especially on small businesses. A few will close because they can’t afford it, others will have to fire a few people, many more will stop hiring.
Second, the huge rise in stamp duty. Property website Zoopla reported that, once the 2% rate between £125,000 and £250,000 comes back in April, the number of transactions hit by stamp duty will rise from 49% to 83%. That will raise an extra £1.1 billion for the Treasury. But it will also mean a big rise in costs, especially for first-time buyers who typically buy less expensive homes. The result? A slowdown in the property market and for all the businesses and trades that depend on it.
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Third, business rates relief for pubs and other hospitality businesses will come to an end. Many of them were already in bad shape. The British Beer and Pub Association says six pubs closed every week last year, while accountant Bailey Price estimates one in ten restaurants are likely to close over the coming year. When rate relief drops from 75% to 40% in April, such businesses will face a huge rise in the tax they have to pay for their premises, and it is levied regardless of whether they are making money or not. Put together with the NI rise, and given that you can’t run a pub without staff, the rate of closures will inevitably accelerate.
Finally, Donald Trump’s tariffs will be imposed. We still don’t know what the rate will be, and perhaps the UK will win an exemption. But Trump has pledged tariffs of up to 25% on Europe, and the levies he has put on Chinese, Mexican and Canadian goods suggest he is not likely to back down. Tariffs on that scale will hit our largest export market hard.
What Rachel Reeves should do instead
A more competent chancellor would be doing something about all this. She could soften the impact of the NI rise, for example, by having it phased in, as many of the major retailers have asked for. She could reform business rates, so that firms only had to pay it when they making profits. The old, simpler system of a single low rate of stamp duty would be less of a barrier to a healthy property market. And she could start making cuts to government spending to lift the threat of yet more tax rises. Instead, Reeves appears to be charging straight for the cliff edge. The result? There will be a spring catastrophe for the economy – and one that is already completely foreseeable.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
