Following John Healey’s first Budget as Chancellor on 28th October, Mark Craddock⁠, Partner and Head of Finance Executive Search, sat down with David Smith, Economics Editor of The Sunday Times, to discuss what it means for UK boardrooms and where the economy is headed next. Here is a summary of the conversation.

Caution was the only choice

Mark asked whether the Chancellor’s decision to avoid sweeping tax rises or spending cuts was brave, timid or simply the only option. David said it was the only option. Gilt markets have been jittery since the Gulf conflict began, and the cost of servicing government debt has climbed since the spring. A Budget that unsettled the bond markets would have dominated every headline. David described it as a stepping stone towards the government’s longer-term plans, including Alan Milburn’s report and a forthcoming ten-year plan.

It was the only choice not to risk an adverse reaction in the markets.

Winners and losers

Around 20 million households will receive £100 through council tax reductions to help with rising energy bills. The bigger change falls on people whose income comes mainly from savings or property, whose income tax rates will now rise by four percentage points from April. Banks face a 15-month extension to the bank surcharge, which David said was far less than they had feared.

With the Chancellor’s headroom now around £15 billion, David commented the gilt market’s calm reaction meant the Treasury had got away with it, though perhaps with a little luck.

The quiet headline: devolution

In a largely low-key Budget, David pointed to the roadmap towards fiscal devolution as potentially its most significant element. The UK is currently the least fiscally devolved economy in the G7. Under the new plans, strategic authorities will keep all business rates raised locally by the end of the decade, along with a share of income tax receipts. David commented that the question now is whether the Greater Manchester model can be replicated elsewhere.

In a very quiet budget, perhaps the biggest thing that was set out was this roadmap towards fiscal devolution.

Interest rates and Europe

Looking ahead to the Monetary Policy Committee’s meeting on 5th November, David’s view is that a rate rise from 3.75% is all but certain. While markets are pricing in four rises over the next year, he expects one or two, with rates peaking around 4.25%.
On Europe, David said Andy Burnham’s willingness to reopen the debate on freedom of movement could open a path back to the single market, which he believes markets and business would welcome.

Reasons for cautious optimism

When Mark asked what the boardroom takeaway should be, David responded that businesses no longer face a government they feel is working against them. He pointed to three reasons for optimism: an economy that has proved resilient through repeated shocks, the potential for AI to help solve the UK’s productivity challenge, and political leaders with real energy for change.

And for those who have heard David speak at our events, his famous skip index currently stands at two skips in his street, which, by his measure, means the economy is growing in line with trend.

The most encouraging thing that I can point to is the economy’s resilience.

We would like to thank David for sharing his insights with us once again. Our clients and candidates always value his perspective, and we look forward to welcoming him back soon. 

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