A former chief economist at the Bank of England has issued a stark warning that the intense political manoeuvring surrounding Chancellor Rachel Reeves' upcoming Budget has created a state of 'paralysis' within the UK economy.
Economic Growth 'Flatlines' Amid Tax Speculation
Andy Haldane, who served at Threadneedle Street for over three decades, stated that 'costly' speculation about potential tax increases has caused the nation's economic growth to effectively 'flatline' in recent months. He described the months of pre-Budget uncertainty as a 'fiscal fandango' that has grounded economic activity.
This criticism comes as the Chancellor prepares to deliver her second Budget on Wednesday, facing a multi-billion pound black hole in the public finances. In a scramble to balance the books, Ms Reeves is expected to announce several significant measures, including:
- Freezing income tax thresholds for an extra two years until 2030.
- Plotting a raid on salary sacrifice schemes, which could impact pensions.
- Introducing a so-called 'mansion tax' on high-value properties.
- Implementing a pay-per-mile levy for electric car owners.
Following a chaotic U-turn, the government is no longer believed to be planning a 2p hike to income tax rates, a move that would have broken a key Labour manifesto commitment.
Budget Process Branded a 'Shambles'
The condemnation of the government's approach extends beyond Mr Haldane. Paul Johnson, the former director of the Institute for Fiscal Studies (IFS) think tank, also blasted the Chancellor's handling of the Budget, branding the entire process a 'shambles'.
Mr Johnson highlighted the 'extraordinary' speculation over recent months, noting that the Bank of England itself cited Budget uncertainty as a primary reason for slow growth in its latest report. He stated unequivocally that the situation has been 'genuinely damaging' and 'really poorly handled'.
Government Defends Process, Blames Watchdog
In defence of the pre-Budget proceedings, a fellow Cabinet minister shifted the blame for the uncertainty. Transport Secretary Heidi Alexander argued that the process has taken place on 'shifting sands'.
Ms Alexander pointed to the Office for Budget Responsibility (OBR), suggesting the fiscal watchdog delivered a larger-than-expected downgrade to its productivity forecasts. This revision is estimated to have blown a fresh £20 billion hole in the public finances, complicating the Chancellor's task from the outset.
Despite the internal defence, the overarching message from top economic experts is clear: the prolonged period of fiscal uncertainty has come at a significant cost to UK economic confidence and growth.
