Labour’s tax increases are pushing workers and investors abroad.
The Editorial Board
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Moody’s boosted Italy’s sovereign-credit rating on expectations for a decline in government debt.
The ratings agency on Friday upgraded Italy’s rating one level to Baa2 from Baa3. The outlook was revised to stable from positive.
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Kelly Cloonan
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The U.K. government’s borrowing continued to run ahead of projections in October, a deterioration in its finances that it will aim to correct with tax rises and some spending cuts in its annual budget statement next week.
The Office for National Statistics on Friday said the government borrowed 17.4 billion pounds ($22.75 billion) in October, bringing the total for the first seven months of the fiscal year to 116.8 billion pounds, 9.9 billion pounds above the amount projected by the Office for Budget Responsibility in its March forecasts.
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Paul Hannon
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Britain’s stock and bond markets flopped Friday morning on new evidence that the country’s Labour Party leadership doesn’t have a clue what to do about the economy or budget. Add this to the list of welfare-state cautionary tales out of Europe.
At one point Friday morning, the yield on the benchmark 10-year government bond, or gilt, had risen 11 basis points to 4.55%. The main London stock index dipped nearly 2%, and the pound fell. This was in response to a Financial Times report Thursday night that Chancellor of the Exchequer Rachel Reeves is abandoning plans to increase income-tax rates in her budget plan this month.
This sounds like good news. but investors interpreted it as a sign that Ms. Reeves and her boss, Prime Minister Keir Starmer, have run out of politically viable ways to balance the government budget—which is true. Estimates of the budget “black hole” Ms. Reeves needs to fill range up to £30 billion per year—the gap between likely spending and revenue if current policies stay the same.
An attempt over the summer to cut some particularly generous welfare benefits collapsed amid a rebellion from Labour backbenchers in Parliament, putting welfare reform off the table. Mr. Starmer is rightly under pressure to increase defense spending. Labour’s promises of economic growth via public “investment” translate mainly to pay increases for government workers.
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The Editorial Board
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GDP rose 0.1% in the third quarter, compared with 0.3% in the second, amid uncertainty about the government’s budget and the impact of a cyberattack on a major carmaker.
Don Nico Forbes
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LONDON—The U.K. has long been torn between two mutually exclusive desires: Voters want European levels of welfare with American levels of taxation.
By accident or design, that debate is slowly being resolved in the direction of higher taxes, as Britain’s Labour government prepares its second major tax increase in as many years.
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David Luhnow
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Bessent Says ‘Tenfold’ Growth in Stablecoins Will Lift Demand for Treasurys
OTTAWA—Canada said Tuesday it intends to run wider deficits to finance spending and tax measures aimed at unleashing the massive private-sector investments the economy needs to rebuild amid a protectionist U.S.
To offset some of the elevated costs, Prime Minister Mark Carney’s government said it would cut the size of the federal public-sector workforce by about 5%, or 16,000 jobs.
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Paul Vieira
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The U.K. government’s upcoming budget will focus on lowering inflation and paving the way for the Bank of England to lower its key interest rate, treasury chief Rachel Reeves said Tuesday.
In a speech, Reeves also said the Nov. 26 budget would aim to lower the government’s debt, but also protect public services. She didn’t rule out a rise in taxes on households, which many economists see as the only option left to the government if it is to achieve its other goals.
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Paul Hannon
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The European debt crisis of the early 2010s created an image of a continent cleaved in two: The fiscally responsible core countries led by Germany versus the spendthrift southern periphery of Portugal, Italy, Greece and Spain—disdainfully dubbed PIGS.
Nowadays, there has been a role reversal. Europe’s three biggest economies are stuck in a cycle of weak growth, leading to widening budget deficits. France is the epicenter of this shift and remains mired in a budget and political crisis, while the U.K. is eyeing tax hikes to try to narrow the gap and avoid spooking markets. Famously frugal Germany and the Netherlands are taking on debt, albeit from lower levels.
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Chelsey Dulaney
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GYEONGJU, South Korea—Amid the pageantry and backslapping, President Trump’s weeklong Asian swing drew attention to a sour point for allies: The U.S. demand that they spend more to respond to a rising threat of Chinese aggression.
Washington first pressured Europeans to boost their military budgets shortly after Trump took office in January. That push ultimately proved successful, with many allies pledging to increase spending.
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[ad_2] Alexander WardWARSAW—For more than a decade, Poland has prepared for the worst-case scenario: becoming the front line in a war between Russia and the West.
With an eye on growing Russian aggression in Europe, Warsaw’s military planners built out the country’s armed forces, turning it last year into the largest European military in the North Atlantic Treaty Organization. It ramped up military spending to 4.7% of gross domestic product this year—the highest in the alliance. A multibillion-dollar spending spree has put Poland among the biggest buyers of U.S. weapons.
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Thomas Grove
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The U.K.’s troubled statistics office cut its estimate for net government borrowing by 3 billion pounds ($4.03 billion), a further setback for the agency that has faced criticism from the Bank of England and lawmakers.
The Office for National Statistics said the U.K. government’s tax authority, HM Revenue and Customs, informed it of an error in value-added tax receipts data it supplied to the data agency.
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Ed Frankl
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Where do they think they are—Italy? France on Monday lost another Prime Minister—the fifth in two years—as Paris burns through senior political leaders at the pace you used to see in Rome. Don’t expect the revolving door to slow down any time soon.
The latest victim of political dysfunction à la française is Sébastien Lecornu, who quit after less than a month as PM. He’d come into office promising a “profound break” with the gridlock of the recent past. Then this weekend he introduced a new cabinet stacked with politicians associated with unpopular President Emmanuel Macron. The backlash in the obstreperous legislature prompted his resignation a day later.
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The Editorial Board
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We set out across the Indo-Pacific in August to assess U.S. military readiness and consult with allies. In the Philippines, Palau and Taiwan, we found partners determined to resist Chinese coercion and willing to share the burden.
In Taiwan we spoke with President Lai Ching-tse and senior officials. They understand the gravity of the threat and are responding with urgency to meet it. Mr. Lai has committed to increasing defense spending and mobilizing the public behind a resilience plan.
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Roger Wicker
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Two years ago, Argentines elected the radical libertarian Javier Milei as president with a mandate to fix the country’s chronically high inflation.
The odds didn’t look good. Previous presidents had failed to address one of inflation’s root causes: government deficits. Without access to capital markets, Argentina often turned to the central bank to finance its deficits by printing money. Efforts to rein in spending were stymied by resistance in Congress and by the public.
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[ad_2] Greg Ip