There are several ways of looking at the Rachel Reeves likely black hole of £20-40 bn in the next budget, the sum she will be told to raise in extra taxes assuming she is unable to restrain extra spending. Very simply it is the direct result of her overspending since coming to office and deciding on major increases, especially over public sector employee numbers and wage settlements.
More helpful ways of looking at it include identifying some of the areas of spending over run that would be easiest to rein in without cutting disability or pensioner benefits, which was never a great idea.
According to the March OBR forecast the Treasury will have to give £23.1bn to the Bank of England in 2026-7 to cover its losses, and another £22.3 bn in 2027-8 . I have often commented on how these numbers could be brought down by stopping bond sales and taking other measures to stem the costs.
There is an estimated £40 bn black hole created by loss of productivity in the public sector since 2019. £22bn of this is NHS losses as set out in ONS estimates of lower productivity in this large service. I have provided some commentary on how Ministers could get back some of these losses, and will provide more in future blogs.
There is the good news that the UK now no longer pays in a net £15 bn to the EU since we have at last terminated membership and further contributions under the bad Withdrawal Agreement. Better still, the UK now retains all of the tariff revenue levied on our imports, where 75-80% of that passed to the EU before when we were members. This has given us a boost of £5bn of tax revenue instead of just £1bn before. We also now collect and can spend the £1bn of Plastics tax, where this all goes to the EU from member states.
If the UK is stupid enough to impose a carbon tax or tariff on imports in line with the EU next year, all this revenue will help reduce the UK deficit whereas it will pass to the EU from member states. If you take the likely gross contribution of the UK to the EU had we stayed as a member, and add in the lost revenues, we will be around £30bn better off next year out of the Union. Just think how bad our finances would be if still inside, at a time when the EU is increasing its spending, borrowing and tax raising substantially.
October 10, 2025
Your last paragraph makes me wonder in what dreadful financial circumstances many States still in the EU find themselves, especially with it trying to become an armaments superpower to rival Russia in the next 2-3 years.
October 10, 2025
Bit but but, we’re still paying into the EU and never here, two tier is slowly signing us up to even more commitments.
We’ve given away our fish for 12 years which I hope Reform will cancel
We’ve allowed our electricity production to be reliant on imports from France, therefore potential blackmail
We are paying,,Mauritius to take Chagos and the total headcount of the civil service and NHS continues to rise.
There is a
lot of low hanging fruit if only we had a parliament fit for purpose.
Reply As I regularly point out
October 10, 2025
Reply to reply
And no-one takes any notice. What was that you were saying about influencing things?
October 10, 2025
Whilst “..we will be around £30bn better off next year out of the Union” just think how even better off we would be (around £15bn next year) out of the other Union.
October 10, 2025
The merits of cutting ourselves free of the EU seem widely under-appreciated in the UK (the remoaners making sure that is so). The EU is in for difficult times, with the June 2025 Bundesbank’s estimate of Germany’s current potential output growth putting the figure at around 0.4 per cent., so around one third of the 2010’s average and one fifth of 1990’s peak.
October 10, 2025
Germany is tottering on the edge of recession. Given that they are the economic ‘Muscle of Brussels’ (to slightly twist Van Damm’s moniker) – I think Ursula & Co will be more than a little concerned…
October 10, 2025
Should the £40 billion black hole be increased by c. £7 bn through abolition of SDLT on primary residences and then be funded by rises in the rates of income tax?
Reply The black hole and future tax cuts should be paid for by spending cuts. I have never proposed higher income tax so why raise it?
October 10, 2025
Do you think the carbon tax will include Chinese EVs windmills and solar panels. No, I don’t think so either.
October 10, 2025
All build, largely using coal derived energy at about 1/5 of UK electricity costs and then exported to us on diesel ships! To give us rip off intermittent electricity. What a great plan to export jobs, wreck the UK economy and damage our industries and our defence abilities. Is Ed totally insane or being deliberately an enemy of the UK for some other motives?
October 10, 2025
We need huge cuts in government spending, benefit spending, scrap net zero, cut energy costs by 4, halve the size of the state, vastly reduce low skilled net cost immigration levels, incentives to work rather than live of others… So much fat is available to cut.
Reeves has indeed increased the deficit with reckless spending and by pushing up the debt interest, but 14 years of the Tories (Cameron, May, Boris, Sunak) – did so much of the damage £100 Bn plus wasted on net harm covid vaccines, net harm lockdowns, corrupt PPE procurement, net harm PPE, the sick joke of HS2, the lunacy of Net Zero, the vast cost of Boris’s open door immigration…
The insanity of the worker right bill should go to and Labour should backtrack on their mad policies like Non Dom abolition, Net Zero, Chagos, vat on school fees and other policies that just drive the rich and hard working overseas or encourage people to work less or just live off benefits more.
But clearly they have a compass 180 degrees out rather like the Tories but even worse!
October 10, 2025
So – Zack Polanski has apologised for claiming to have been able to help women increase the size of their breasts using his mind. The newly elected Green Party leader, while previously working as a hypnotherapist, offered a session to increase an undercover newspaper reporter’s breast size and improve her body image.
Well probably rather less damaging, less painful and far cheaper that offering her actual breast enlargement operations!
Perhaps we can use hypnosis to get rid of the greens, Tories, Labour, Ed’s, the LibDim’s delusions on the CO2 devil gas religion and climate alarmism! But perhaps that is harder – so totally deluded are they.
October 10, 2025
So Two Tier is in India perhaps his discussing his trade deal that undercuts British workers with Indian ones who do not have to pay NI for three years! Another damagingly rigged market. I note that we do not seem able to send illegal migrants back to India and have to do it v. expensively via France with the mad one (thousand in reality) in one out scheme!
Can he at least agree a direct returns policy with them and stop this undercutting of British Workers?
October 10, 2025
I agree. Problem is there simply isn’t the willingness of workers here in the UK (and in the West in general) to work as hard as industry would like them to which is why industry wants foreign workers (although industry also doesn’t want some of the illegal immigrants either who end up here). So how to fix the problem to greatly increase productivity amongst native Brirish population? The solution – and not easy and hardly gets discussed – is ultimately cultural / social in nature – not ultimately political or even economic.
October 10, 2025
no foreign workers are in the uk overwhelmingly because they are cheap, often helped by big tax perks to undercut locals
October 10, 2025
@Ed M. Some of that unwillingness is driven by the perverse incentives baked into the benefits system.
Many of us know someone who won’t work more than x hours per week (except for cash) because otherwise they’ll lose their in-work benefits, or at the very least have them re-evaluated with the hassle that involves and risk of a substantial cut.
Somehow we need to wean low paid workers off these benefits. Is the answer to make employers pay more (for obvious reasons not a great answer)? Or to accept low earning workers will have to live in real poverty (not ideal, either). I don’t know the answer, but I do see the disincentives to work the current “support” system creates.
Reply One of the key ideas behind the Universal Credit reform was to always make it worthwhile to work by having the right thresholds and tapers. The system delayed roll out for disability benefit recipients where some top up benefits should apply in or out of work anyway.
October 10, 2025
They should indeed cut stamp duty as it is a hugely damaging tax. Not a tax on money you have made just a tax on moving and buy a home. So why did the dire Tories increase it from 4% to 15% top rates over 14 years! Why to is Kemi only removing it for main residences and not for properties to rent thus increasing rents!
October 10, 2025
@ Reply ” I have never proposed higher income tax so why raise it?” – only because Shadow Chancellor Stride reportedly said the other day he would raise income tax were he now in Reeves’s position.
I doubt either Reeves or Stride would give us the budget we need: you by contrast likely would which is why I requested the other day that you consider outlining your budget soon before the November statement please.
Reply It is not Conservative policy to increase Income Tax and I would bet neither Conservatives nor Reform will put Income tax rises in their 2028/9 Manifestos
October 10, 2025
Politicians for donkey’s years have been terrified of raising income tax rates, at least back to the LibDem idea of putting a penny on to pay for ‘Care’ or whatever it was. This is surely the fairest way to do things as everyone, even low earners contribute, but no, they’d rather tinker with farmers IHT to bankrupt farming, shove up Council Tax (not everyone even pays it) and myriad other things which just complicate the tax code already the biggest in the world.
Reply There is no need to raise Income Tax. I have set out how to curb spending
October 11, 2025
I agree Sir John, but unfortunately they are not listening to Common Sense, only the Treasury and the OBR, both of which need abolishing.
October 10, 2025
A few days ago (and before Kemi’s announcement) I pointed out here that SDLT is grit in the housing market. Previous SDLT holidays have been to the benefit of sellers in enabling them to secure better prices, but they have also resulted in much higher numbers of housing transactions. That has many benefits, including right sizing and vacating of city and commuter property by retirees, and property refurbishment expenditure by new owners. There are substantial economic gains that accrue, many of which generate other additional taxes through increased economic activity.
October 10, 2025
I find the first sentence of the last paragraph confusing. Hasn’t Starmer already committed us to alignment with the EU on Carbon Trading Tax costing us billions and raising the price of imports for UK consumers? If so this revenue will not benefit the UK? I’m glad we left a corrupt and deranged EU, an EU Intending to spend billions of tax payers euros funding a lost war in Ukraine. Indeed the very same EU with US State Department helped stage a coup in Kiev in 2014 when the war with Russia actually started.
Reply Yes he wants to impose a similar tax to them via cbam but the UK treasury gets the revenue, paid by us UK consumers, instead of us paying it to EU
October 10, 2025
As Kathryn Porter pointed out in her recent and widely viewed podcast on TRIGGERnometry CBAM will apply to almost everything if it is enacted. It could be equivalent to a substantial increase in VAT (which will be charged on top). The economic fallout would be colossal.
October 10, 2025
@Michael Saxton. Unfortunately we pump millions of pounds into Ukraine one way and another, and have become one of the west’s most hawkish nations on the proxy war with Russia. I wish we would stop meddling and direct our security services to focus on real domestic threats rather than phoney foreign ones.
October 10, 2025
Every single piece of alignment Starmer agrees to will come with a cost – we will have to pay them billions to align with their food standard for example. Ditto paying for tens of thousands of EU students who come here on the Erasmus programme. I’m amazed we aren’t having to pay them for giving them 12 years of fishing rights. What always strikes me about this and the previous government and the Civil Service are what very bad negotiators they are, they seems to have no relevant skills to carry out what in the private sector is a very skilled and specific job.
October 10, 2025
Never understood this having to align with EU food standards, when surely ours are already superior. Can’t even drink the water in some of their countries. Regarding negotiators, they negotiate according to their own political beliefs, not what is best for the country. They are all mad EU fans so we get a poor deal and everything is in favour of the EU.
October 10, 2025
Cutting disability benefits and other benefits is a great idea. Targeted help for these in real need and no help for others and those who arrived here by choice.
Huge savings are available while cutting the number of civil servants required to support them and administer payments to them.
Then reduce public sector pension contributions by (at least) 10%. Again huge savings.
That has not affected any delivery of other government or public sector activities.
October 11, 2025
£10.6 billion of Universal credit going to people who chose to come here. If you can’t afford to move here you shouldn’t be here.
I had to prove i could pay for my wife to get a visa so we could move back here. That seemed quite fair to me at the time.
October 10, 2025
The biggest issue we have to face is false and flawed data issued into the public domain by the national broadcaster and other ‘better off in’ government agencies. The bitter rejection of their false position still triggers/angers them. Causing them to present arguments and projections that are simply made up fear mongering and wrong.
The ongoing known bad management tactics and policies of government, seen since leaving the EU are shocking and show us where the problem actually is. The public sector and the civil service in particular, are the problem.
The boat people crossing the Channel is a case in point.
The constant threat of using law by migrant activists to blunt the function/purpose of the border force service is why the nation has become focused on the ECHR. That is a distraction tactic.
The ECHR is an almost convenient excuse for failure by the government. A government now failing to carry out even its most basic function and responsibility, i.e. maintain national security.
When an open ended stream of potentially hostile men are allowed ashore unimpeded, then looked after in hotels and provided with comforts they could only dream of prior to arrival, when that happens, we know we have a huge government size problem to deal with.
The institutions should be providing balanced reflection of what needs to be done to normalise a chaotic situation, but they do the very opposite.
Until we refocus the state funded institutions to economic reality, we are getting nowhere. There needs to be consequences for those who fail to accept that budgets and balance are a fundamental part of their responsibility.
The result of their failure is another tax increasing budget when the nation needs the very opposite.
October 10, 2025
we should stop giving work visa holders national insurance free years here, which labour have extended. an essy popular tax increase which would reduce the numbers of locals displaced from the jobs market by imports.
October 10, 2025
iain, I think they’re about to combine employees’ NI and income tax together, which would effectively put an end to that.
October 10, 2025
they wont do that, because the NI perk is such a big deal that both Labour and Conservatives signed up to with India. also the fact you can get tax refunds but not national insurance refunds would almost certainly impact things.
but it should be done as part of a far bigger simplification of the tax and benefits system.
October 10, 2025
There has been a lot of hype surrounding artificial intelligence, and American AI stocks have helped propel the market to record highs. Which reminds many with long memories of the dot.com crash of 2000. Meanwhile, this year gold & silver miners have quietly outperformed the AI chip stocks.
At $3000/oz, most gold miners with confirmed underground reserves became profitable. At $3500/oz they became cash cows. At $4000/oz, they are absolutely coining it. Interestingly, while the Nasdaq 100 is ridiculously overvalued at a p/e of ~38, the gold and silver miners are on p/e ratios around 12 – 15, cheap!
Institutional fund managers are not usually allowed to invest directly in bullion. In the last few months they have been piling into the miners. Barring the traditional party-ending October stock market crash, the risk for the miners is to the upside.
Reply This site does not offer investment advice. The above is a comment which may well be wrong and is not advice.
October 10, 2025
to reply He’s only repeating what is in the popular press. Reminds me of the “finance expert” who, after the 2008 crash, said “I knew it was coming” ‘How much money did you make?’ “Nothing” ‘Well you didn’t know it was coming!’.
October 11, 2025
Or perhaps he had free cash to place bets!
October 10, 2025
Now we just need to get Brixit Done!
Wasn’t that a promise reneged on by some political ‘oik’, some one else who’s ego was ahead of the job in hand.
October 10, 2025
Poor Rachel Reeves. She knows she needs to cut spending but the Labour backbenchers won’t let her. Maybe she will resign when she acknowledges her job is impossible in a Labour government. Increasing taxes will just stifle the growth she desires even more.
I’d say there needs to be reduction in spending across the board, so that’s cuts in what the NHS is required to do, cuts in benefits, cuts in the state pension. In other words upset everyone. Once the deficit is eliminated we can consider cuts in taxes. Not a recipe for being re-elected even disregarding the Labour backbenchers won’t wear it, but there’s little prospect for that anyway.
October 10, 2025
The Event Horizon will be on Weds 26 November. Then she’ll go down in that hole into the darkness.
October 10, 2025
It is good to focus on quick ways to reduce the so-called “black hole.” But Starmer and Reeves are reaping what they have sown. It’s their own stupidity that has put them in this position. Usually, Labour comes to power when the Conservatives have reduced or fixed the deficit and reduced the debt, but not this time. So Labour are starting with an empty wallet, and it seems to be a shock to them.
There should be no tax increases, but serious cuts in government spending, well beyond any simple wins. The Quangos are costing us around £350 billion a year, according to the Taxpayers’ Alliance. A 50% cut in their funding would cover the “black hole,” leaving some surplus to ease the tax burden and pay back debt.
But when we need intelligent Government and MPs, we get third-rate ones who don’t understand basic economics!
October 10, 2025
A substantial amount of money could be saved by not pursuing the unnecessary and futile goal to net zero our CO2 emissions. According to Professor Gordon Hughes of the renewable Energy Foundation, the period 2002 to the present, the total cost to the electricity consumer of those renewable electricity subsidy schemes that he can quantify has amounted to approximately £220 billion (in 2024 prices), equivalent to nearly £8,000 per household. The annual subsidy cost is currently £25.8 billion a year, a sum equivalent to nearly fifty per cent of UK annual spending on defence. Subsidy to renewable electricity generators now comprises about 40% of the total cost of electricity supply in the United Kingdom. NESO has costed the Labour Clean Power 2030 mission as “over £40bn annually”.
October 10, 2025
The UK should be working towards trying to create something like a Council of Europe which is OUTSIDE the EU / Single Market but that fosters close, non-legal relations within Europe on matters of 1. Illegal Immigrants 2. The Economy 3. Security / Defence 4. Culture.
1. ILLEGAL IMMIGRANTS. Europe needs to work closely together to stop illegal immigrants flooding Europe.
2. THE ECONOMY. I mean coming together to discuss big projects we can’t do on our own such as creating companies such as Airbus but in other non-legally binding ways too. In the Middle Ages, Europe had the Hanseatic League. We want as easy trade with Europe without bing in EU / Single Market whilst being free to trade further afield.
3. SECURITY / DEFENCE. By working closely together to crush terrorism. Where we have our own armies but where they train together more. Where we help each other build things we can’t do on our own like aircraft carriers. To help develop the technology to create dome-like defence to shoot down future drones and hypersonic missiles. In the past, Europeans worked together to bring down Napoleon.
4. CULTURE. We all have the same Graeco-Roman culture and there should continue to be close pollination between European culture in the sense how Shakespeare was inspired by the European Renaissance, how all the great medieval European churches were inspired by each other, and so on.
Europe should have close relations. But not incestuous ones. We need to get on well. But not cramp each other’s space. It’s madness to not to get on closely with our neighbours as it’s madness, ultimately (getting there is another argument), not to be sovereign.
Reply There is one.
October 10, 2025
There is no council in place which is outside the EU / Single Market AND which people take seriously / could be really influential and positive!
Reply What nonsense. I take many UK Councils seriously.
October 10, 2025
I didn’t mean those kind of councils. I meant a big council to replace The EU / Single Market. We got to think big. The EU / Single Market flawed – bad for both UK and Europe. It should be replaced by a Council of Europe outside EU / Single Market. To persuade other countries in Europe to join. Big task, I know. But do-able (unless you think the EU is going to be strong and remain for years? I don’t)
Reply If you want to contribute sensibly do find out what we have today . There is a Council of Europe, the UN , NATO, the ECHR, Schengen, candidate EU members, trade partners, FTA s etc. There are plenty of ways for leaders to co ordinate and act jointly. They often do considerable damage.
October 10, 2025
Mike Graham interviewed Matt Vickers, Deputy Chairman of the Conservative Party, yesterday. At about 3hr 12 minutes in, the topic of Net Zero is raised. Matt Vickers is asked whether the ban on petrol cars will be lifted – answer came there none!
https://notalotofpeopleknowthat.wordpress.com/
Reply I guess that is because they are still working on the Policy Review. Conservatives have said they are not going to write a full Manifesto until nearer the election. They pushed the ban back to 2035 to avoid any job losses for this decade, this government brought it forward to 2030 to accelerate job loss and factory closure. I oppose any ban.Lib Dems support the government. I have not heard a Reform policy on this.
October 10, 2025
Just applying UN Agenda 2030 …..perhaps
https://www.gov.uk/government/publications/agenda-2030-delivering-the-global-goals
October 11, 2025
Reply to reply.
Less than helpful then since people will be having to decide in the next 3 years whether to buy a new petrol or diesel car in order to beat the 2030 ban. I’m currently thinking of trading in my small petrol car next year or ’27 at the latest in order to ensure I will be able to get one, since I have no intention of ever buying an EV.
Calculations like that are going on all over the country … and meanwhile our car industry is going down the Swanee, thanks to the idiocy of successive Governments and the current “Opposition.”
October 10, 2025
VAT on private schools was introduced in January 2025 by the end of the year they must know how much this has raised. We need to check it raised the £1.5-£1.7bn promised. Less the cost of those transferring to the State sector to fund out of that if more than estimated.
When Hunt put up corporation tax from 19% to 25% from April 2023 – Mar 2024, how much more money did that bring in for her to spend?
Hunt’s freezing of tax thresholds, panned by Reeves in opposition, how much extra did that bring in for her to spend?
Finally, how much more in attendance allowance and pension credit costing after Reeves removal of the winter fuel allowance, what saving did she make after the extra costs?
October 10, 2025
“According to the March OBR forecast the Treasury will have to give £23.1bn to the Bank of England in 2026-7 to cover its losses, and another £22.3 bn in 2027-8.”
The Bank of England is another unelected quango. Quangos are anti-democratic.
October 10, 2025
As I write yet another complaint letter to yet another part of the public sector I have come to lots of understandings, the complaints processes in the public sector don’t work, they are mainly designed to put lots of hoops in the process to delay and obstruct any access to proper review and improvements, the complaints processes are not staffed by independent people, the whole edifice is dodgy. The wasted money by the public sector allover the place could easily be improved but taking some obvious actions.
October 10, 2025
27 criminals were illicitly shipped, into the UK yesterday on the 9th October from France…Just one hotel today
October 10, 2025
the British government has fully funded the import of students from Gaza, their course fees, their living expenses, while local students are forced into expensive student loans, you really could not make it up
October 11, 2025
No, the British Government hasn’t; it’s made British Taxpayers fund it.
I doubt if any of them will ever return to Gaza and their families will shortly be shipped over to join them. If they haven’t already.
October 11, 2025
“If the UK is stupid enough to impose a carbon tax or tariff on imports in line with the EU next year”
It is a safe prediction that Starmer’s Gang will do precisely that unless Trump cuts them off at the pass by threatening UK with retaliatory tariffs.