Rachel Reeves' 'fiscal fandango' has 'paralysed' UK economy
A former Bank of England chief economist today warned the 'fiscal fandango' around Rachel Reeves' Budget had caused 'paralysis' in the UK economy.Andy Haldane, who worked in Threadneedle Street for more than 30 years, said 'costly' speculation about tax rises had caused growth to 'flatline' in recent months.Ahead of her second Budget on Wednesday, Ms Reeves is facing a multi-billion pound black hole in the public finances.As she scrambles to balance the books, the Chancellor is expected to raise billions of pounds by freezing income tax thresholds for an extra two years to 2030.She is also said to be plotting a raid on salary sacrifice schemes, including pensions; a 'mansion tax' on expensive homes; and a pay-per-mile levy on electric cars.But, following a chaotic U-turn, Ms Reeves is no longer thought to be planning a Labour manifesto-busting 2p hike to income tax rates.Paul Johnson, the ex-boss of the Institute for Fiscal Studies think tank, was another top expert to blast the Chancellor's handling of the Budget as he branded it a 'shambles'.But one of Ms Reeves' fellow Cabinet ministers defended the pre-Budget process and blamed the Office for Budget Responsibility (OBR) watchdog for uncertainty. A former Bank of England chief economist today warned the 'fiscal fandango' around Rachel Reeves ' Budget had caused 'paralysis' in the UK economy . Andy Haldane, who worked in Threadneedle Street for more than 30 years, said 'costly' speculation about tax rises had caused growth to 'flatline' in recent months But Heidi Alexander, one of Ms Reeves' fellow Cabinet ministers, defended the pre-Budget process and blamed the Office for Budget Responsibility watchdog for uncertaintySpeaking on the BBC's Sunday With Laura Kuenssberg show ahead of Wednesday's Budget, Mr Haldane said: 'We've had month upon month of speculation - fiscal fandango, basically.'And that's been costly for the economy. It's caused paralysis among business and consumers.'It's the single biggest reason why growth has flatlined, it's been grounded in the second half of the year.'After announcing a slew of tax rises at her Budget last year, Ms Reeves told businesses she would not be "coming back" with tax hikes in the coming years.But, as she battles a huge hole in the public finances, she has since paved the way for a series of fresh levy hikes when she reveals her latest fiscal package in three days' time. Mr Haldane demanded Ms Reeves' use her Budget on Wednesday to deliver 'decisive action that puts to bed and beyond reproach any notion of further tax rises'.He also called for a 're-enginnering' of the Budget process, which he said was 'too lengthy, too leaky, with real costs'.'So let's fix, for the forseeable future, the possibility of tax rises and fix the Budget process,' he added.Mr Haldane suggested financial markets were concerned about the Labour Government's ability to control public spending as he warned of a 'Wile E. Coyote moment'.It is widely expected that Ms Reeves will splurge around £3billion a year extra on welfare at her Budget by axing the two-child benefit cap in a bid to appease Labour MPs. 'Financial markets do need to see some signs that this Government is capable of getting its arms around public spending. It really does,' Mr Haldane said.'This is a vulnerable moment. There is a risk of a Wile E. Coyote moment. The ground disappears beneath their feet in the financial markets. That is to be avoided at all costs.'Mr Johnson also criticised the 'extraordinary' speculation about Ms Reeves' plans over the past few months.'We've had months and months of speculation about this might happen, that might happen - virtually everything might happen,' he told Sky News.'And then, of course, we had the extraordinary U-turn on the U-turn with regards to the manifesto commitment. This is genuinely damaging.'The Bank of England, in its latest report, the very first thing it said about the reason for slow growth in the last few months is speculation about the Budget.'This has been really poorly handled.'Asked to sum up the Budget process in a single word, Mr Johnson replied: 'Shambles.But Transport Secretary Heidi Alexander defended the pre-Budget process, saying it has taken place on “shifting sands”. The Cabinet minister highlighted how the OBR is reported to have to delivered to Ms Reeves a larger-than-expected downgrade to its productivity forecasts.It is estimated this has left a fresh gap in the public finances of more than £20billion.'The review that the OBR have done about the productivity forecasts has meant that this whole process has really taken place on shifting sands to start off with, and we’ve got a very challenging global economic environment,' Ms Alexander told the BBC.
