The Balancing Act
Capital & Interests: The Budget’s Big Test for Labour
Harry Arnold 22.10.2024
With Labour back in power and an economy once again on the path to recovery, what could the upcoming budget mean for housing and, more specifically, your mortgage?
On October 30th, Rachel Reeves will take to the lectern to deliver the first Labour budget since March 2010. That budget, titled “Securing the Recovery”, was set against a backdrop of significant financial unrest following the banking crisis. The Labour party lost the ensuing election and the rest is history. Now, the new government must deliver on its promise of economic competence and their pre-election pitch that the grown-ups are back in charge after years of stagnant growth, high taxes and - you guessed it - financial unrest.
Opinion polls will show that while parties in Downing Street and misleading parliament hurt the Conservative brand, it was when interest rates started to soar and the veneer of economic stability shattered at the mini budget, that the majority of middle Britain started to look elsewhere for someone to trust. Mortgages, as it turns out, are political dynamite - tamper with them at your peril.
This is why recent movement in the gilt market will have the Treasury on edge. The electorate that Reeves must now bring on board aren’t just high street punters - it’s the bond market itself. No shaking, only stirring please.
If gilt traders consider her spending plans too reckless, her investment strategy unsound, we can expect to see bond prices rise, pushing mortgage costs higher. Labour repeatedly used the spike in mortgage rates following the mini-budget as an attack line on the Conservatives. If history repeats itself under Labour’s watch, they’ll be on a hiding to nothing.
That said, we expect the budget to strike a balanced tone, with tax rises in capital gains, adjustments to inheritance tax, an increase in employers National Insurance contributions, and possible changes to pension and ISA allowances. This would be in aid of improved public services and plugging those black holes in the finances. Alongside these tax rises, we expect to see the government look to change the way it calculates government debt, allowing it to borrow billions more for infrastructure investment, aimed at spurring long-term growth. UK government debt relies primarily on the kindness of strangers, as we look mainly to foreign investors vs domestic buyers to purchase our bonds. Tactical recent interventions by former Bank of England governor Mark Carney and former deputy governor Andy Haldane have given credibility to this strategy, and it’s become commonplace for economists to rail against the UK’s low investment record and lack of industrial strategy — but don’t forget the mortgage. New roads and wind turbines won’t soothe angry homeowners if mortgage rates start climbing again.
At Anderson Harris, our approach is to ensure our customers are as insulated as possible from any economic volatility. If your mortgage is coming up for a renewal, lock in a new deal as early as possible; make sure you know how deep the water is, and don’t rely on a “wait and see” approach. Fiscal events can often create frayed nerves, and while governments don’t usually deliver economic pandemonium, recent years have taught us one thing: it never hurts to carry an umbrella.
Get in touch with anything mortgage related; we would be pleased to hear from you.