Leading authority on tax and spending policy to depart Institute for Fiscal Studies next year for Queen's College, Oxford

A proposed Italian-German bank merger makes sense for Europe, but Berlin is opting for domestic protectionismA potential merger between a German bank and an Italian rival would not normally elicit much interest beyond the business pages. But these are not normal times. The Italian bank UniCredit recently provoked a political backlash in Germany by acquiring a 21% stake in the German lender Commerzbank. Even chancellor Olaf Scholz weighed in, calling the Italian move an unfriendly attack". The significance of this row runs far beyond the worlds of Italian and German finance.News of the acquisition came just weeks after the publication of a report by Mario Draghi, the former president of the European Central Bank, on how to address the EU's declining competitiveness against the US and China. The former Italian prime minister warned that the EU faces slow agony" unless it takes radical action. One of Draghi's key recommendations was the need for deeper financial integration. In that context, German hostility to any tie-up raises serious questions about Berlin's political commitment to wider European reform. Continue reading...

In today's newsletter: Chancellor Rachel Reeves is painting a bleak picture ahead of the budget later this month. Here's what all the jargon means Sign up here for our daily newsletter, First EditionGood morning. I'm really sorry about this, but today's newsletter is about the extent of the black hole" in the public finances and the government's fiscal rules.I don't like this any more than you do: I'd frankly rather be writing about whether King Conker is a cheat. But the budget is nearly upon us, and the chancellor, Rachel Reeves, has started talking about a 40bn funding gap, when you might have only just got used to being alarmed about the 22bn black hole". Several of today's front pages carry reports of planned tax rises to balance the books; meanwhile, Reeves is planning to redefine debt to give herself more room for manoeuvre. If you have found yourself confused by this, congratulations on at least paying close enough attention to notice how knotty it all is.Music | Liam Payne, a former member of the boyband One Direction, has died after falling from a third-floor hotel room in Buenos Aires. Hundreds of fans gathered outside the hotel to pay tribute after the news, while authorities in Argentina said they were investigating the circumstances of Payne's death.National security | Counter-terrorism police are investigating whether Russian spies planted an incendiary device on a plane to Britain that caught fire at a DHL warehouse in Birmingham in July, the Guardian can reveal. Investigators are examining possible links with a similar incident in Germany, also in July.Extremism | An international network of race science" activists seeking to influence public debate with discredited ideas on race and eugenics has been operating with secret funding from a multimillionaire US tech entrepreneur. Seattle businessman Andrew Conru pulled his support after being approached by the Guardian.Asylum | Nearly 63,000 people who were waiting for their cases to be processed at the time of the general election are expected to be granted asylum after Labour dropped the Rwanda deportation scheme, an analysis has found. The Refugee Council said the asylum backlog was on track to be 59,000 cases lower at the start of 2025 after the processing of claims accelerated.US election | Kamala Harris said her presidency would not be a continuation of Joe Biden's presidency" in her first interview with Fox News as she criticized Donald Trump over his threats against the enemy within". In a contentious interview, Harris was pressed on subjects where she has come under attack from the right including immigration and the rights of transgender people.That just means debt should be falling by the last year of that period. That's it. Think about what that means: it's like saying on 1 January, right, I'm going to go on a diet this year, but I'm going to lose all the weight in December.Nobody would take you seriously if you said that, and economists from a broad spectrum think it's stupid. Fiscal rules are there to look plausible, they are often broken when it comes to the crunch, and they rely on the public not really knowing what they mean." Continue reading...

Focus on conflict, corruption and poverty heightens perception of risk, raising interest on sovereign debt, authors sayAfrica loses up to 3.2bn yearly in inflated interest payments on sovereign debt due to persistent negative stereotypes that dominate international media coverage of the continent, according to a new report.Research by consultants Africa Practice and the advocacy non-profit Africa No Filter suggests that media portrayals, especially during elections when global coverage is heightened, focus disproportionately on conflict, corruption, poverty, disease and poor leadership, widening disparities between perceived and actual risks of investing in the continent, and creating a monolithic view of Africa. Continue reading...

Getting rid of SDRT would pay for itself over time because other receipts would rise, abolitionists sayRachel Reeves is looking for taxes to raise, rather than ones to abolish. Never mind: here is a tax that ought to be scrapped by a government that calls itself pro-growth, pro-business and pro-investment, which was the pitch at this week's big summit. What's more, the enticing claim from abolitionists is that getting rid of the tax could - with a few qualifications - pay for itself over time because other Treasury receipts would rise.The tax is stamp duty on shares - or, in full, stamp duty reserve tax, or SDRT. It is the 0.5% levy on purchases of shares in UK companies that brought 3.8bn into the Treasury in the 2022-23 tax year. Ireland has a higher rate, 1%, but nobody else does. The US, China and Germany don't impose any equivalent tax at all. So the claim that the UK is at a competitive disadvantage in attracting listings and liquidity to its stock market looks solid. At a moment of panic over the sleepy state of London, especially at the bottom half of the stock market, that point ought to resonate. Continue reading...

Labour set out plans to raise taxes by 7.3bn in its manifesto - but Treasury briefing suggests 40bn in tax rises and spending cuts neededRobert Jenrick has finished his speech, and he is now taking questions.Q: Kemi Badenoch says she is Labour's worst nightmare. Is she right?I think that our party faces an existential challenge right now. Our party has no divine right to exist. That's why we need to get the choice right in this leadership election, and that's why I stand for ending the drama, ending the excuses, and actually delivering for the British people. Continue reading...

UK inflation drops below 2% target in September, weakening pound, and likely meaning a small increase in state benefits next year

Payments such as universal credit linked to previous September's figure, meaning a rise of just 1.7% in AprilLast month's surprise fall in UK inflation lands with bad timing for millions of people who receive state benefits linked to the figure, who can now expect their payments to rise by just 1.7% next April.A number of benefits, including universal credit, are increased each tax year in line with the cost of living figure for the previous September. Continue reading...

Surprise annual drop to 1.7% in September raises chance of interest rate cuts, increasing budget leeway

Fall means interest rates could be cut faster than previously thought and is welcome news for Rachel Reeves

In often-combative conversation with Bloomberg editor in Chicago, Trump says tariff' is his favorite wordDonald Trump doubled down on his promise to levy tariffs on all imports in a bid to boost American manufacturing, a proposal that economists say would probably mean higher prices for consumers while angering US allies.To me, the most beautiful word in the dictionary is tariffs'," Trump said in an often-combative conversation with John Micklethwait, editor-in-chief of Bloomberg News, at the Economic Club of Chicago on Tuesday. It's my favorite word."Don't miss important US election coverage. Get our free app and sign up for election alerts Continue reading...

Rolling coverage of the latest economic and financial news, as IMF warns that future debt levels could be higher than currently projected

Business body covering pubs, hotels and restaurants says budget tax change would increase costs

Gap between wages and inflation narrows in August, as unemployment rate dips to 4%

Hints at plans to increase employers' national insurance contributions comes as demand for labour slows

In today's newsletter: At a summit in London on Monday, the prime minister tried to stir investment in Britain - here's how it went Sign up here for our daily newsletter, First EditionGood morning, and a warm welcome back to myself: thanks to Nimo and Heather Stewart for bringing you First Edition while I was away.The dread words were repeated in a number of news stories yesterday: The summit was livestreamed on LinkedIn." The event in question was Labour's inaugural UK business summit, designed to encourage investment in the UK from international firms, but mainly getting headlines for chancellor Rachel Reeves' hint that she is planning to raise employer national insurance contributions at the budget.Middle East | More than 20 people were killed in an Israeli airstrike on a Christian town in northern Lebanon, prompting Hezbollah to fire rockets at Tel Aviv, as Israel's multifront war continues to escalate. Meanwhile on Monday, the UK, Italy France and Germany released a joint statement condemning Israel for repeatedly attacking UN peacekeepers.Russia | The UK government believes that the Russian president, Vladimir Putin, personally authorised the Salisbury novichok poisonings, which could have killed thousands of people, an inquiry has been told.UK news | The father of the 10-year-old schoolgirl Sara Sharif killed her before fleeing to Pakistan and calling police to say he beat her up too much", a court has heard. Sara's body was discovered at the family home in Woking, Surrey, on 10 August last year alongside a handwritten note from her father.Politics | The Tory leadership candidate Kemi Badenoch has been criticised for a campaign pamphlet that said autistic people received better treatment" and economic privileges and protections".Conkers | The World Conker Championships is investigating cheating allegations after the men's winner was found to have a steel chestnut in his pocket. David Jakins, who has competed since 1977 and is also head judge or King Conker", was found to have a metal replica in his pocket when he was searched after his victory. Continue reading...

You are pivotal to this great cause of our times,' Keir Starmer tells global bosses in London as he targets wealth creation

Chancellor says businesses will understand balancing the books is necessary for fiscal stability

Rachel Reeves's green paper seems to take policy more seriously than Tory predecessorsIndustrial strategies were not a big thing in the UK from the 1980s until the great financial crisis of 2008-09. Since then, these supposedly long-term plans have arrived at infuriatingly short intervals. The UK has had 10 industrial strategies, growth plans or similar since 2011, according to the Labour government's Invest 2035" document, published on Monday alongside the investment summit.All were accompanied by a blizzard of platitudes and declarations of good intentions. In 2017, Teresa May's government said it was setting out a long-term vision for how Britain can build on its economic strengths, address its productivity performance, embrace technological change and boost the earning power of people across the UK". None of those aspirations would be out of place in Keir Starmer's vision for a 10-year plan to deliver the certainty and stability businesses need to invest in the high-growth sectors that will drive our growth mission". Continue reading...

Cabinet Office minister Ellie Reeves says Labour is closing Tory freebies loophole' over declaring hospitality

Chancellor says 60bn of investment has been announced at summit, showing confidence in UK economy

British-born Simon Johnson and James A Robinson and Turkish-American Daron Acemolu share 810,000 prizeThree US-based professors, including two UK-born academics, have been awarded this year's Nobel prize in economics, for showing how the political and economic systems introduced by colonisers can determine whether a country is rich or poor today.The explanation put forward by Turkish-American Daron Acemolu, Sheffield-born Simon Johnson and Briton James A Robinson suggests that inclusive institutions set up for the long-term benefit of European migrants ended up resulting in more prosperous societies in the long term. Continue reading...

Thinktank reports saying sector should be hit with extra 900m to 3bn in levies prompt market selloff

The Guardian's Pippa Crerar and Kiran Stacey look at the government's international investment summit, and how talk of slashing red tape' is going down among Labour MPs. And, after the death of the ex-SNP leader and former first minister of Scotland, Alex Salmond, what will his legacy be?

Keir Starmer pledged to 'rip up the bureaucracy that blocks investment' and 'repair Britain's brand' as the prime minister hosted some of the world's biggest businesses on Monday at a conference designed to boost the country's appeal. The Labour leader came to power in July after he promised to end years of political instability and win back the faith of private investors to reinvigorate the UK's rundown infrastructure and public services. According to Reuters, the overall value of foreign direct investment inflows as a proportion of Britain's economy hit a nine-year low of 2.7% in the second quarter of 2024

Guests at all-day event include the NHS boss, execs from Google, BlackRock and Aviva - and Gareth Southgate

There is discomfort in Labour's ranks over way forward as PM prepares to welcome powerful financiers to London investment summitKeir Starmer is treading a narrow path. After a challenging first 100 days in government, the prime minister has an opportunity on Monday to relaunch Labour's central mission: to restore economic growth.But as some of the world's most powerful financiers fly into London for the new government's inaugural international investment summit, they do so with Starmer's cabinet at odds about how that mission should be achieved. Continue reading...

Business lobby groups fear the impact of the government's environmental standards on efforts to revive the London Stock ExchangeWhen Keir Starmer launched the Labour party's 142-page manifesto in June, the future prime minister was dubbed a man of no surprises. But alongside much-trailed pledges to kickstart economic growth and cut NHS waiting lists were newly adopted plans for new environmental regulations for London's largest listed companies.Labour will make the UK the green finance capital of the world," the manifesto said. And to get there, the party pledged to ensure that FTSE 100 companies - as well the City's banks, asset managers, insurers and pension funds - adopt credible" climate transition plans in line with the Paris agreement's pledge to limit the rise in global temperatures to 1.5C. Continue reading...

For the fourth time in 16 years, bazooka' stimulus aims to reset the economy - but China's problems demand structural solutionsChina's leaders seem to have invoked the definition of insanity, attributed, perhaps wrongly, to Einstein: doing the same thing over and over again, and expecting different results.For the fourth time in 16 years, Beijing has been spooked by faltering growth into adopting an array of economic stimulus measures designed to reset the economy. It didn't work for long in 2008, 2015 or 2021, and the bazooka" measures announced recently will also most likely come up short. Continue reading...

To get the necessary investment, Labour must bring the financial sector onboard while diluting its often malign influence

Boosting growth and investment while averting austerity is a tough ask, but options are available for the chancellor, writes the research director of the Resolution Foundation Labour MPs urge Reeves to spend tens of billions more on ailing public servicesThe chancellor has said she wants to avoid a return to austerity". She's also said she'll deliver a pro-investment, pro-growth budget. Those are laudable goals, but she must fix a dire set of public finances, a tough task not helped by the 22bn overspend uncovered this summer. This is the trilemma facing Rachel Reeves before the government's pivotal first budget. Here's how she might try to tackle it. Continue reading...

Economic problems and the far right threaten the whole of Europe. Labour's isolationist approach must changeThere ought to be not only a national esprit de corps, but a European esprit de corps."This plea by the renowned barrister and lord chancellor FE Smith - who became the first Earl of Birkenhead - was made in the wake of the devastation caused by the first world war. Birkenhead, a friend of Churchill's, died in 1930, shortly before the rise of Hitler and the subsequent outbreak of the second world war. Alas, no European esprit de corps in the 1930s! Continue reading...

Resolution Foundation says overspend chancellor claims she inherited will persist unless tough choices are made

Powerful vested interests are trying to stop the wealthy from paying their fair share. Rachel Reeves should ignore themDenis Healey is often misquoted as saying he wanted to squeeze the rich until the pips squeak" in the 1970s. He never actually used that phrase. What Labour's finance spokesman did predict, however, was that his proposed top tax rate would spark howls of anguish from the 80,000 people" wealthy enough to pay. With Labour in power again, it seems plus ca change, plus c'est la meme chose. On Thursday this newspaper reported that Rachel Reeves, Healey's successor in the Treasury, was looking at taxing the rich more by increasing capital gains tax. That would be a very good idea. Yet howls of anguish" fill the airwaves and can be found on newspaper front pages. Ms Reeves should ignore them.For decades the rich have projected ideas that support their interests, notably by reframing political language to valorise wealth creators". Post the financial crisis, this has been a harder sell. But plutocrats won't easily give up their muscle, privileges and wealth. In Britain, the grossly unfair distribution of power fuels the effort to protect 3,000 individuals in private equity from Labour's plan to make them pay their fair share in tax. It's absurd to think that successful capitalists require an annual state subsidy of 188,000 just to perform their roles. However, this is probably only the beginning of Labour's efforts. On paper, Britain's tax system seems relatively progressive, with a headline rate of 47% for those earning over 3m. In reality, nearly a quarter of this ultra-wealthy group pays less than 12% in taxes.Do you have an opinion on the issues raised in this article? If you would like to submit a response of up to 300 words by email to be considered for publication in our letters section, please click here. Continue reading...

Treasury weighing proposals as chancellor attempts to plug 22bn hole in public finances

UK GDP rose by 0.2% in August, reports Office for National Statistics, with accountancy, retail and many manufacturers having strong months

As chancellor reaches milestone she faces the tricky task of rescuing public finances while also investing in growthThe politics all looked simple for Rachel Reeves as she stepped over the threshold of the Treasury on 5 July to take up her post as Britain's first female chancellor. The outgoing Conservative government had been routed at the general election and the idea was to blame the discredited Tories for the looming repair job on the public finances deemed essential by the new government.As it turned out, things during Reeves's first 100 days - a milestone she crosses on Saturday - proved to be not quite that simple. The chancellor duly rolled out phase 1 of her plan three weeks after the election when, after looking at the books, she said there was a 22bn hole that needed to be filled. Reeves expressed shock and anger at the evidence of fiscal incontinence that had come to light. The means testing of the winter fuel allowance was merely an early taste of the pain to be expected in the budget at the end of October, Reeves made clear. Continue reading...

GDP rises by 0.2% in August after flatlining in June and July but rate of expansion slower than first half of yearThe UK economy returned to growth in August after flatlining for two months, in a boost for the chancellor, Rachel Reeves, before the autumn budget.The Office for National Statistics (ONS) said gross domestic product rose by 0.2% in August, after zero growth in June and July. The reading matched the forecasts of City economists. Continue reading...

Co-founder of 4bn British tech firm to lead Office for Investment as a minister in Treasury and Department of Business and TradeThe co-founder of the 4bn British tech firm Darktrace, Poppy Gustafsson, has been appointed as the government's new investment minister.Darktrace, the listed cybersecurity company, was this month sold to a US private equity firm and Gustafsson stepped down as chief executive. She will become a peer. Continue reading...

What to do on HS2 | Women who start war | Tory leadership race | The comfort of Corbyn | A Labour shakeupThe answer to the question of what to do on HS2 (Nils Pratley on finance, 7 October) depends on the opportunity cost. Everything that can be done is affordable, but if the Treasury insists that the price of more for HS2 is child poverty, cold pensioners, unbuilt hospitals and more obstacles to compensation for victims of injustice (Chagos, contaminated blood, post office, Grenfell etc) then HS2 must stop at Old Oak Common. A sculpture called Black Hole by Anish Kapoor could be built there as a monument to Treasury orthodoxy.

Yield on 10-year UK government debt hits highest since early July, while inflation has eased in the US

Bureau of Labor Statistics releases final monthly inflation reading before voters head to polls for presidential election

Exclusive: Rates of 33% to 39% being tested as Treasury source says tax-raising plans are in complete disarray'Rachel Reeves is considering raising capital gains tax as high as 39% in the budget, the Guardian can reveal, amid a scramble to raise funds for crumbling public services.Treasury modelling being reviewed by the chancellor and seen by this newspaper shows officials are testing a range of 33% to 39% for capital gains tax (CGT). Continue reading...

She is losing the tussle between head and heart. The economy is better than it has ever been, but ordinary people don't feel itThe defining question in US politics was asked 44 years ago this month. One week before the 1980 presidential election, Ronald Reagan and Jimmy Carter squared up to each other for a televised debate. A former Hollywood actor, Reagan was also proving a lethal Washington aphorist. At the close, he spoke into the camera: Next Tuesday, all of you will go to the polls. You'll stand there in the polling place and make a decision." Watching at home were more than 80 million Americans. When you make that decision ... ask yourself: are you better off than you were four years ago?" Is it easier to buy things, he asked, is unemployment lower?A few days later, voters gave their answer, handing Reagan a 44-state landslide. Every presidential contest since has been framed in large part by his simple, deadly question. Ask it in the final stretch of this election and you get to the great mystery of why the race remains so close. Continue reading...

An oil price shock and economic downturn are among the likely effects of an attack on Iran's exporting capacityWhen Joe Biden last week said that his administration has been discussing" possible Israeli plans to attack Iran's oil industry in retaliation for Iran's ballistic missile attack, it left the world stunned. Notably because Mr Biden didn't reject these plans outright, in the way that he had the day before regarding a possible strike on Iran's nuclear sites. Oil prices jumped 10%, even though the US president walked back the remark the next day.The historian AJP Taylor wrote that wars are much like road accidents" in that they had profound consequences but did not necessarily have equally profound causes. Targeted Israeli strikes on refinery complexes may not do much more than win domestic applause. Bombing Kharg Island, the heart of Iran's oil-export operations, would cripple its economy. However, such a move might also drive up global oil prices and have an impact on American consumers just weeks before a crucial election. Continue reading...

Trio face one more round of voting by MPs before party members have their say on final twoThe prison system in England and Wales was teetering on disaster" when Labour came to power, James Timpson, the prisons minister said today.Speaking at his first Prison Governors' Association conference in Nottingham since he took on the role, Timpson said:It has not been easy to rehabilitate offenders in a system teetering on disaster.We have to take the tough decisions bringing changes to release to ease the pressure on our prisons. It was quite frankly a rescue effort. If we had not acted our justice system would have grinded to a halt - we would have faced a total breakdown of law and order.Unison said it has given notice to Perth and Kinross Council for strike action by members in schools and early years centres.The union, which is the largest local government trade union in Scotland, hopes targeting the action in Swinney's constituency will bring home to him the importance of finding a fair settlement" to the council pay dispute. Continue reading...

Rolling coverage of the latest economic and financial news, as UK gilt yields rise and water companies face paying 157m to customers

Democratic lawmakers accuse companies of shrinking product sizes while charging consumers the same priceIt's becoming a common experience for Americans going to the grocery store: your bag of chips seems lighter, your favorite drink comes in a slimmer bottle, and you're running out of laundry detergent more quickly than usual. And yet things are staying the same price.On Monday two Democratic lawmakers launched an attempt to get to the bottom of the phenomena, accusing three major companies, Coca-Cola, PepsiCo and General Mills, of shrinking the size of products while charging consumers the same price - a price-gouging practice known as shrinkflation". Continue reading...

BP CEO Murray Auchincloss has dropped a target to cut oil and gas output by 2030, reports Reuters

In letter to chancellor, Tesco and M&S are among firms warning tax could result in widespread store closuresMore than 70 retailers, including Tesco, Marks & Spencer and Ikea, are lobbying the chancellor, Rachel Reeves, for a 20% cut to business rates, warning that the property tax could force tens of thousands of shops to shut.In a letter to Reeves coordinated by the British Retail Consortium (BRC), executives are pushing the Treasury to introduce a retail rates corrector" on the levy, which is a property-based tax charged by local councils and imposed on businesses including retailers, pubs, factories and company offices. Continue reading...