History lessons for Reeves ahead of budget

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Dispatch

Despite millions of words being written and spoken about today’s budget, the event will probably be forgotten for a decade.

Give or take one or two, most budgets are alienated from most people, perhaps, by some politicians and the grand people at the Institute for Fiscal Studies who are paid to evaluate these things.

Rachel Reeves, Chancellor of the Exchequer (UK Finance Minister), has done her best to challenge convention. Her first budget, delivered on Halloween 2024, is still hotly debated in a year because she took £25 billion ($33 billion) from businesses. Increase employers’ National Insurance contributions (Payroll Tax) and As a result unemployment increases.

Mainly, though, a few budgets remain in consciousness weeks later.

An exception was made by Geoffrey Howe on March 10, 1981 when Britain was in the grip of stagflation.

Inflation, which had started in the mid-1970s, was running at 15% while unemployment rose by one million over the previous year.

The national debt was also rising. Howe’s response was a budget that raised a then-colossal £4 billion in tax through a freeze in the threshold – a tactic Reeves would deploy today – and big rises in alcohol, tobacco and motor fuel duties.

There was a windfall tax on banks, whose profits were due to the government’s recent rise in interest rates aimed at curbing inflation (the Bank of England did not achieve financial independence until 1997), as well as a tax on oil flowing from the North Sea.

Coming from a government committed to tax cuts, it was highly controversial, with some MPs from Howe’s own Conservative Party walking out during the speech.

In late March 1981, 364 economists – among them Mervyn King, the future Governor of the Bank of England – famously wrote to The Times arguing that their policies had “no basis in economic theory or supporting evidence”, warning that the Budget threatened Britain’s “social and political stability”.

Although painful, Howe’s Third Budget is now remembered as the one that brought inflation under control and enabled interest rates to fall, which reduced the high exchange rate that hurt British industry. Most economic historians now agree that it set Britain on a growth path for the rest of the 1980s.

The ghost of past budgets

Also well remembered from that era, with Prime Minister Margaret Thatcher in 10 Downing Street, was the 1988 Budget presented by Hove’s successor, Nigel Lawson. It still divides pundits.

Lawson had already shown himself to be a reforming chancellor with his budget in 1984, in which he abolished the investment income surcharge and simplified the business tax regime by canceling many tax breaks, while at the same time cutting corporation tax rates.

On 15 March 1988, he sought to go further by reducing the top rate of income tax from 60p to 40p and the basic rate from 27p to 25p. However, he also announced changes to mortgage tax relief, which boosted mortgage applications as people sought to buy homes before it came into effect later that year.

As Thatcher later recalled in her memoirs: “This gave the housing market an immediate boost … just at the wrong time, when the housing market was already heating up.”

Coming at a time of loose monetary policy, this monetary easing can be seen as sowing the seeds of the recession and housing market crash of the early 1990s.

Another budget remembered by many – sadly for the wrong reasons – is Gordon Brown’s on July 2, 1997. The first budget delivered by a Labor chancellor for 18 years included Brown’s proposed “welfare in a domestic scheme, a £5.2 billion windfall tax on VAT and a further tax on domestic utilities”.

But the measure for which he is most remembered was the decision to strip pension funds of tax credits on dividend payments.

In his budget speech, Brown justified the move thus: “The current system of tax credits encourages companies to pay dividends rather than reinvest their profits. This may not be the best way to encourage investment in the long term.”

The subsequent history of commercial investment in the UK suggests that Brown failed in this aim. Worse, the move – thought to cost pension funds a cumulative £250 billion over the next 20 years – hastened the closure of defined benefit pension schemes in the private sector as employers concluded they could no longer afford to keep them open.

They have been replaced by less generous defined benefit plans where the risk of reduced retirement income is borne by the employee rather than the employer.

It condemned millions of private sector workers born after 1960 to a poorer retirement than they would have otherwise enjoyed and, once defined benefit plans were closed to new members, it effectively meant they were in the run-off – forcing them to hold bonds rather than equity to match their liabilities. Before Brown’s move institutional investors and pension funds owned half of the UK stock market; Which is now reduced to around 4%.

Another memory persists from 1997. Budget Day is the one day in the parliamentary calendar when MPs – the Chancellor – can drink something other than water. Labour’s Denis Healey delivered his 1970s budget while drinking brandy, Howe preferred a gin and tonic while Ken Clarke, Conservative chancellor from 1993 to 1997, enjoyed a whiskey in the despatch box. Brown turned to water in 1997 and every chancellor since has followed suit.

Given how long chancellors take to package their budgets, it’s remarkable how little they are remembered, with 1981, 1988 and 1997 among the exceptions.

The danger for Reeves is that both of her budgets – few in Westminster expect her to be around a third – will do so. And not with good reason.

Top TV Picks on CNBC

Sanjay Raja, Deutsche Bank’s Chief UK Economist, discusses the upcoming Autumn Budget

Laura Cooper, Nuveen’s global investment strategist, says the UK faces “more intense growth pressures” as the budget factors in.

Former Conservative UK Treasury Minister and Goldman Sachs chief economist Jim O’Neill says the budget is motivated by a desire to keep Labor MPs on side.

– Holly Eliot

Need to know

UK Autumn Budget 2025. Britain is bracing for a “smorgasbord” of tax increases to be unveiled on Wednesday. Follow CNBC’s budget coverage throughout the day on us Live blog here.

Markets are on tenterhooks over UK budget plans. Market strategists say Reeves should stick to his own rules and opt to raise taxes to appease investors. But they warn the chancellor It should go beyond that.

(PRO) Three Ways for Investors to Trade on a Budget Investors say pessimism is hanging over Reeves Crucial Autumn Budget This week’s mask series Contrasting opportunities across different sectors and asset classes.

– Holly Eliot

Quote of the week

in the markets

London-listed stocks moved higher this week FTSE 100 Adding 0.6% since last Wednesday as investors await the UK’s Autumn Budget. The UK index hit its highest point during the week on Tuesday, a day before UK Finance Minister Rachel Reeves tried to appease voters and money markets in her public address.

It’s been a busy week for defense stocks amid a potential peace deal between Kiev and Moscow. European names slipped in the week, but individual UK names Rolls Royce, BAE Systems And QinetiQ were mixed.

the english pound The past couple of days fluctuated but last week increased 0.18% against the US dollar. It hit its lowest level on Wednesday last week.

Produced by the UK Government 10-year bondsGilts, known as gilts, were lower over the same period, moving from 4.546% to 4.483%.

– Tasmin Lockwood

coming up

November 26: Autumn Budget 2025 presented
November 28: UK car production for October
Dec. 1: Bank of England mortgage data for October

– Holly Eliot