Interest rates - impact of 45% u turn

Stubod

..U turn????...more like a handbrake turn  

hallmark

It's incredible IMO, that the Tories didn't even wargame reactions to the mini-budget. The 45%>40% reduction was always going to generate the reaction it did, hard to fathom how they didn't have a straightforward conversation along the lines of "this will cause a huge pushback, are we going to stick with it regardless? If yes, then propose it, if not, then under no circumstances propose it".

They now end up in the worst of all possible worlds.  Truss has demonstrated that she's weak, that she'll cave to social media pressure, and that she has no ideological belief in her own tax cuts.   On top of that, having done nothing whatsoever since they got in power for the highest taxpayers in the country (and lets not forget that's what those 45% payers are) the Tories have now done pretty much the only worse thing they could: offered them something then taken it back.  So add that group to the laundry list of demographics who hate the Tories.

Bearing in mind that by the time of the next election we'll probably be seeing house price falls for the first time in forever, along with quite a few million households no longer able to pay their mortgage which has suddenly jumped up, it's hard to see any possible circumstances where Labour don't easily win the next election.  Starmer may have no good qualities whatsoever, but as Joe Biden demonstrated, just "not being the other guy/party" is sometimes enough.

marycanary

hallmark said:

Bearing in mind that by the time of the next election we'll probably be seeing house price falls for the first time in forever, along with quite a few million households no longer able to pay their mortgage which has suddenly jumped up, it's hard to see any possible circumstances where Labour don't easily win the next election.  Starmer may have no good qualities whatsoever, but as Joe Biden demonstrated, just "not being the other guy/party" is sometimes enough.

Not in forever

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/march2021

Exodi

hallmark said:

Bearing in mind that by the time of the next election we'll probably be seeing house price falls for the first time in forever, along with quite a few million households no longer able to pay their mortgage which has suddenly jumped up, it's hard to see any possible circumstances where Labour don't easily win the next election.  Starmer may have no good qualities whatsoever, but as Joe Biden demonstrated, just "not being the other guy/party" is sometimes enough.

Assuming they are able to offer clear alternatives - some take issue with Labour  spending most of the time beating the tories with hindsight. Keir Starmer was regularly coined 'captain hindsight' equipped with his 'retrospectoscope' by Boris Johnson and I think that resonated with a lot of people.

Despite what we are led to believe, virtually all of the inflationary pressures on the UK are nothing to do with the tories. Keir has validated that he would also try to borrow his way out of this situation, potentially to greater extents as he works to please the lower income voters.

I would not say Labour would necessarily easily win the next election, unless Liz and Kwasi decided to go for round 2 on career suicide.

Thumbs_Up

Since politics is being added to this thread let me say this, what a sorry state of affairs when The Labour party’s only chance for power is the meltdown of the Tories. Politics in this country are juvenile and government’s of any colour are a complete shambles.

Malthusian

hallmark said:

It's incredible IMO, that the Tories didn't even wargame reactions to the mini-budget. The 45%>40% reduction was always going to generate the reaction it did, hard to fathom how they didn't have a straightforward conversation along the lines of "this will cause a huge pushback, are we going to stick with it regardless? If yes, then propose it, if not, then under no circumstances propose it".

There's a big difference between "stick with it in the teeth of media whinging" and "stick with it in the teeth of your own MPs saying they will vote against it".
Sometimes you have to accept you've lost control. There's not much point in wargaming a rout. 

They now end up in the worst of all possible worlds.  Truss has demonstrated that she's weak, that she'll cave to social media pressure, and that she has no ideological belief in her own tax cuts.   On top of that, having done nothing whatsoever since they got in power for the highest taxpayers in the country (and lets not forget that's what those 45% payers are) the Tories have now done pretty much the only worse thing they could: offered them something then taken it back.  So add that group to the laundry list of demographics who hate the Tories.

The entire country seems to be united in the belief that ideological belief in abolishing the 45% tax band is a bad thing. So presumably Liz not being fully committed to it is a good thing.  

Media: Cutting taxes for the rich by 5% is a terrible idea! Truss must listen to the country and stop it immediately!

Truss: Ok, we won't do it then.

Media: oH nO! U-turn! In office but not in power! Truss is finished! What does she think this is, a democracy?

Bearing in mind that by the time of the next election we'll probably be seeing house price falls for the first time in forever, along with quite a few million households no longer able to pay their mortgage which has suddenly jumped up, it's hard to see any possible circumstances where Labour don't easily win the next election. 

Every household will be able to afford their mortgage when interest rates go up. It's built into the affordability tests that have been mandated by the FCA since the credit crisis. Some of them will have to cut spending in other areas or increase income. And? We've known for a decade that interest rates wouldn't be near-zero forever.

If it was guaranteed that house prices would drop in a couple of years' time, it would already have happened. Nobody's going to offer £300,000 for a property they know they'll be able to get for £250,000 in two years.

Labour certainly should win the next election as the Tories have won four in a row, and in 2024 Labour will have been overdue their turn for 4 years. They forfeited their last turn via the monumental incompetence of electing Corbyn. And yet somehow it still doesn't look like a done deal that they will take their turn next time. It says it all that we have to invent a non-existent housing crash to make a Starmer landslide seem plausible.

Frequentlyhere

NedS said:

Malthusian said:

Frequentlyhere said:

I've already seen rumblings on social media about rebellion over putting real terms cuts on the welfare state. They'll probably still try it on, and be forced to reverse there too.

Only if Tory backbenchers decide to march on Truss' office on behalf of lifelong Labour voters.
If Truss can't get the backbenchers to vote through cuts to welfare, what's the alternative? The 1922 committee brings down her government, forces the party faithful to vote correctly this time and install Crisis Sunak, who then... sticks to his "austerity forever" platform and cuts the welfare budget even more?

I think cutting benefits (or rather not uprating in line with inflation) was not a viable option at the same time as abolishing the 45% tax rate, but now that U-turn has been done, welfare cuts are quite possibly back on the table and not as unpalatable to MPs.

Well we will see. Michael Gove has already turned his attention to ensuring that that prior promise (uprating benefits with inflation) will be maintained.

I'm quite happy to stick my neck out on this one, I feel pretty confident that any attempt to not do this now will fail. The U-turn hasn't strengthened their position, it's weakened it.  Backbenchers smell blood.

The very moment a real terms welfare cut is crystallised into pounds and pence,  there'll be an uproar, and they'll back down.

Where that leaves the leadership I feel much less confident on. Ousted or as a lame duck, not sure.

NedS

coastline said:

daveyjp said:

The reaction was because the effects of the announcment hadn't been stress tested or costed with the OBR input.

The market then very quickly realised that the tax cut was being paid for by borrowing a load of money.

The 45p would have cost £2bn, but don't be distracted by that.  It is now £43bn rather than £45bn borrowed to pay for tax cuts.

I'd lift the personal tax allowance and not the new19p tax rate. Even pensioners would have benefited from that especially those with a second pension. When state pension is lifted soon there'll be around £2 grand left in the allowance. Not much then and remember it's frozen until 2026 atm.

It will be interesting to see what happens regarding the freezing of those thresholds. Obviously, when the decision was taken to freeze then, inflation was still low. If inflation is 10% this year and next, as more and more pensioners get sucked into paying income tax, the pressure will no doubt mount.

Had the threshold for BRT not been frozen, it would have been around £14,256 next April (3.1% + assumed 10%), and worth far more than the 1% reduction in the basic rate to 19%

Malthusian

Frequentlyhere said:

Where that leaves the leadership I feel much less confident on. Ousted or as a lame duck, not sure.

Both of which are extremely unappealing prospects for the backbench MPs you're expecting to continue rebelling against their party leadership to defend the interests of people who mostly vote for the other side. 
If the Truss regime is ousted, the Tories will have spent six months on leadership elections during a time of global crisis. Even if Second-Choice Sunak limps into 2024 with a favourable economy, Starmer just has to stay upright and people will vote for him just because they are sick of nearly a decade of permanent Tory crisis.
If Truss spends two years not being able to do anything because the backbenchers vote against her just because they can, the same applies.
My instinct is that not having to stand on people's doorsteps and defend a 5p tax cut for the rich is enough to make the backbenchers put away their pitchforks.

hallmark

Malthusian said:

Every household will be able to afford their mortgage when interest rates go up. It's built into the affordability tests that have been mandated by the FCA since the credit crisis. Some of them will have to cut spending in other areas or increase income. And? We've known for a decade that interest rates wouldn't be near-zero forever.

I'm (genuinely) not sure if I'm misreading or missing a joke, but the chances of every household that reverts to (what will be a way higher) variable rate being able to afford it, is zero.  I'd be surprised if hardly any of them can.   And UK has a disproportionately high amount of borrowers on short-term fixed rate deals.

IMO if this years story is energy prices, next years and the year after will be the inability to afford mortgage payments (and rent, when landlords who can't afford increased mortgage repayments increase rent in order to do so).

Will the Govt step in with "help for the most vulnerable" paid for by more QE and restrictions on rent increases.  Both likely IMO, whoever is in power.