Let’s not get bogged down by the Budget

Mouthy Money editor Edmund Greaves argues that while the Budget at the end of October is important, it is not the only thing of consequence happening to our money at the moment.

For a financial journalist, the Budget is the biggest day of the year. We crowd around TV screens, notepads and pencils in hand, ready, willing and able to take notes on what the Chancellor announces.

This Budget seems to be gathering all the more intensity ahead of schedule than is usual. This is fair enough. It is the first Budget by a Labour Government since 2010 and comes at a time when some difficult choices need to be made.

But the temptation here is to focus in too hard on one event, and not see the wood for the trees.

Taxation is one of the most powerful tools a state can have in the pursuit of its goals, be that paying for a health service, aircraft carriers or new railway lines (or actually, pension liabilities). But Governments can do things that seriously impact our finances that have nothing at all to do with taxation.

This can come in many different forms too. Consider the Government’s lax approach to creating energy independence over decades, which led directly to the cost-of-living crisis. Or the failure to peg the state pension to anything of real value other than annual tax receipts.

Without wishing to make an exhaustive list of things that Government (of all stripes) do wrong, there are a couple in mind from the new one that could have significant unintended consequences, despite their noble aims. Here are the two I have in mind.

LISTEN: Editor Edmund Greaves and Chris Tuite, head of consumer finance at communications agency MRM, discuss these topics and more on the weekly Mouthy Money podcast

Renters’ reform

We have a good amount of detail now on what Labour plans to do about renters’ rights reform, with a bill now in the works through Parliament.

Among other things, Section 21 ‘no fault’ evictions look set for the chop finally (after the gutless Tories failed to go through with it), while it will introduce ‘decent homes standards’, enhanced tenant rights, protection from mid-tenancy rent increases and other measures.

Taken at face value and these reforms all seem fair enough. Protect renters, don’t let landlords turn the screw financially, and improve living conditions. These things are hard to argue against.

But (yes I’m going to attempt to be contrarian here) I think that these enhancements will come at a cost. This cost will be born by the renters as landlords seek to shore up their positions. Restrictions placed on the rental market will affect supply because some landlords will sell up rather than take the tougher rules, and this will affect the market response to more demand and less supply.

In other words, rent is going to go up.

Improving the stock of rental property in terms of quality and living standards (again, no bad thing) will also come at a cost. This will cause some landlords to sell, or hike rents when they get the opportunity. Again, this will cost renters ultimately.

I must emphasise that these enhancements are almost certainly necessary. But they will come at a cost. We must be more honest about who will ultimately bear that cost. It won’t be the landlords.

More from Edmund Greaves

Workplace rights

We’re less clear on the exact plans that Labour has for enhancing workers’ rights, but we are expecting some legislation in the very near future to appear, and for it to contain around 75 separate measures to improve employee rights.

Chief among the potential changes are restrictions on the use of zero-hour contracts, protection against unfair dismissal from day one of employment, more statutory sick pay coverage, a right to flexible working, tighter rules around ‘fire and rehire’ and potentially a new ‘right to switch off’ after hours.

In a similar vein to renters’ rights reform, these are probably no bad thing, but will certainly come at a cost. However, unlike renters who will feel higher rents, these reforms have the potential to create a different kind of personal finance problem – unemployment.

Unemployment is the economic dog that hasn’t barked since the financial crisis. Aside from the extraordinary pandemic years we’ve had no real unemployment issues in the UK. This is generally seen as rather a good thing.

Rising unemployment is a problem though. A big one.

The workers’ reforms Labour propose would take us to a sort of employment market (in regulatory terms) much more commensurate with France. France is a lovely country for policy wonks because in demographic and economic terms its quite similar.  So when we look at how the French do things, we have a rough estimate of how that thing might affect us.

To paint the economic context then – France has a more productive workforce than the UK. Although productivity is a complicated issue, some of it probably comes down to happier workers with stronger rights.

BUT (and it is a big but) France also has higher levels of unemployment. To put some figures on it – the UK has about 75% of working age adults in some form of employment (although the definition of that is broad). In France the equivalent figure is 69%.

Were this worst-case scenario to happen, you’re looking at an increase in unemployment of two million people (based on the 33.34 million people in work as of July 2024).

Now this is certainly not a given, but the differential here would mean a 6% increase in unemployment in the UK in the wake of these reforms. This is unlikely to come all at once (although an uptick is likely soon after). More likely is we’ll see bosses less forthcoming with new roles, and more assiduous in hiring. It is likely to make those without work find it harder to get a new job and will probably entrench people in jobs they already have, again slowing things down.

My attempt to highlight these two ‘non-Budget’ personal financial issues is by no means an attempt to disparage Labour’s plans.

But my wish generally with this kind of article is to point out that the choices we make tend to have consequences. With renters’ and workers’ reforms those are likely to be higher rents and higher unemployment.

Enough of both those problems and it’s not hard to foresee some significant political trouble in the fallout.

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