29 September 2025: An HMRC rule extension could cost millions of workers

Rachel Reeves’ stealth tax raid will cost millions of workers £285 a year, it has been warned. Labour Party Chancellor Ms Reeves could raise an extra £10.4 billion if she extends the HMRC threshold freeze in November.

The average worker could see £285 wiped from their annual salary by the end of the decade under a shake-up from November as Ms Reeves prepares to deliver her budget.

The Chancellor is reportedly considering another stealth tax raid in her autumn Budget, despite previously pledging to unfreeze thresholds by April 2028. The measure would leave 1.3 million taxpayers paying £285 more on average in tax by 2030, according to research commissioned by the House of Commons Library for the Liberal Democrats.

Those in London would be worst affected, with 170,000 earners in the capital paying an average of £350 more in tax by the end of the decade. In the South East, 200,000 taxpayers would be £320 worse off. The freeze would raise £10.4bn for the Government as more workers are pushed into higher tax brackets.

Liberal Democrat leader Sir Ed Davey has called on the Chancellor to honour her pledge not to extend the freeze. He said: "The Chancellor must stick to her word and rule out extending these stealth taxes ahead of the Budget. We must draw a line in the sand. To ask people to fork out again for the Conservatives' economic mismanagement and this Labour Government's failure to clean it up is simply wrong," Mr Davey said.

Bank of England MPC member Swati Dhingra said at the weekend that Britain’s high inflation should ease by year-end, and the Central Bank should then move faster in reducing borrowing costs.

The effect of the shocks driving the UK’s current high inflation relative to Europe will fade, and thus, we should not be overly cautious about cutting interest rates,” Dhingra wrote in a column for The Times.

Dhingra was one of two members of the nine-member MPC who voted this month to cut the Bank of England’s benchmark Bank Rate by 0.25 percentage points. The other seven members opted to keep rates unchanged at 4 per cent.

“Global commodity shocks can largely explain the difference in inflation between the UK and our continental neighbours. These should ease gradually. At the same time, the Bank should be more concerned about “entrenched” inflation due to a wage-price spiral.

If the small and medium-sized enterprises sector of the economy were to invest at rates in line with larger companies, up to £60 billion of new investment could be unleashed per year into the UK economy, as per a new report by Barclays.

In 2024, UK business investment reached a record level, and in the first half of 2025, business investment grew 3 per cent year-on-year. Currently, however, larger companies are driving investment in the UK, while SMEs lag in both confidence and capital expenditure.

SMR owners have been concerned by the new initiatives surrounding National Insurance and the minimum wage, which are more noticeable in the cash flow of smaller employers.

The pound lost ground last week as the U.S. economy grew at a far greater rate than previously reported in Q2, which added support for the dollar. The pound fell to a low of 1.3324 and closed at 1.3401.

The annual merry-go-round in which a shutdown of the Federal Government is threatened due to Government Spending closing in on the debt ceiling is about to start again.

The top four congressional leaders will meet with President Donald Trump at the White House later today, a day before federal funding would expire if the two parties can’t agree on a short-term spending bill.

The discussions will be the first between Trump and congressional leaders ahead of the deadline to avoid a shutdown. Senate Democratic Leader Chuck Schumer and his House counterpart, Hakeem Jeffries, were expected to meet with the president last week, but the White House cancelled the meeting at the last minute.

Republicans will need at least seven Democrats to back the short-term bill in the Senate, which has already passed the House. Trump has threatened mass firings of federal workers if the government shuts down.

Senate Minority Leader Chuck Schumer, D-N.Y., said yesterday that Congress can prevent a government shutdown when money expires this week, but only if Republicans engage in a “serious negotiation.”

In an interview on NBC News, Schumer confirmed that he called Senate Majority Leader John Thune on Friday to encourage a meeting, which the White House accepted on Saturday evening.

Schumer said reaching a deal “depends on the Republicans.”

It has been almost seven years since the US saw its last government shutdown, a record-setting fight during Donald Trump’s first term. Since then, the cycle has been familiar: political brinkmanship, eleventh-hour compromises, and markets largely shrugging it off. But this round looks different. The odds of a shutdown starting just after midnight on October 1 are high, and the fallout may be more severe than investors are accustomed to.

Lawmakers appear to be holding their ground, with President Trump and Republicans on one side. The Democrats, on the other hand, are pushing to extend healthcare subsidies to keep Obamacare-related insurance premiums in check. Neither camp seems willing to blink, raising the odds of a partial shutdown just after midnight on October 1.

Federal Reserve Vice Chair for Supervision Michelle Bowman reiterated on Friday that she believes decisive interest rate cuts are needed to ward off rising trouble in the job market.

“Recent data shows a materially more fragile labour market along with inflation that, excluding tariffs, has continued to hover not far above our target,” Bowman said in the text of a speech delivered before a gathering of the Forecasters Club of New York.

Citing many months’ worth of data showing mounting issues in the job market, Bowman said it is time for the FOMC to act decisively and proactively to address decreasing labour market dynamism and emerging signs of fragility.

She said, “We are at serious risk of already being behind the curve in addressing deteriorating labour market conditions, and noted, "Should these conditions continue, I am concerned that we will need to adjust policy at a faster pace and to a larger degree going forward.

The dollar reacted positively to news that the economy grew by 3.8% in the second quarter. The data was revised up from the previous estimate of 3.3%. The dollar index rallied to a high of 98.60 and closed at 98.19.

The new Dutch Central Bank Governor, Olaf Sleijpen, who took over on July 1st from Klaas Knot, told reporters last week that European politicians shouldn’t rely on European Central Bank emergency instruments to solve their fiscal problems.

Asked in an interview with the Dutch equivalent of the Financial Times if the ECB’s never-deployed program designed to counter excessive market moves, known as the Transmission Protection Instrument, could be used to support government bonds, the new Dutch central bank chief was guarded.

The European Central Bank (ECB) will not be used as a tool to rectify government fiscal failures, and anyone expecting that should reconsider their expectations.

Olaf made it known that the Transmission Protection Instrument, a tool designed by the ECB to control severe market disruptions, won’t be used to rescue countries that can’t manage their budgets.

“The instrument exists — it can be used temporarily under certain conditions, but it’s absolutely not intended for certain things,” he said. “So, I think the idea that the ECB will solve it is a bit too simplistic. Some things really should be resolved by politicians themselves.”

Sleijpen, who took over in July after Klaas Knot stepped down, said he wasn’t interested in being called a hawk or a dove. “Price stability is what I’m paid for,” he said. He pointed out that the ECB's primary job is to keep inflation under control.

“The ECB simply has an unequivocal mandate, and that is price stability. That’s the most important thing for me. I will commit myself to a monetary policy that aligns with that.”

When asked if the ECB’s deposit rate would stay at 2%, Sleijpen didn’t give a yes or no. “There’s a great deal of uncertainty,” he said. He explained that inflation could drop faster than expected if the economy weakens or if the euro gains strength against the dollar.

Eurostat has revised upward its estimate of eurozone economic growth for the second quarter of 2025. Growth remained modest, driven by rising consumer spending in both the eurozone and the EU as a whole, as well as higher government spending.

Among EU member states, the highest gross domestic product growth rates were recorded in Denmark, Romania, Croatia and Poland, supported by a variety of instruments, from industrial growth to investments from EU funds.

However, despite the improved sentiment, the stabilisation and slight growth may not last. The main risk to the European economy remains the threat of a slowdown in internal economic activity, and much will depend on demand and the extent to which EU funds are used. Germany’s slowdown, driven by weak external demand, is a significant factor in the slower overall growth.

Another challenge will be the impact of U.S. tariffs, particularly on pharmaceuticals and trucks, which will affect major manufacturers. For example, Denmark led the EU in growth in the second quarter, but its central bank recently lowered its GDP forecasts for 2025-27, citing the adverse effect of U.S. tariffs.

Several large European companies have frozen hiring or cut jobs this year, citing challenging economic conditions exacerbated by U.S. tariffs and persistently weak demand for many products.

Daimler-Benz, the truckmaker, confirmed media reports on August 1 that it would cut 2,000 jobs across its plants in the U.S. and Mexico, in addition to the previously announced 5,000 job cuts in Germany. Meanwhile, Stellantis, Volkswagen, and Volvo announced various schemes to reduce costs and employee numbers.

The Euro fell to a low of 1.1644 and closed at 1.1702 last week as the dollar’s correction continued, spurred on by better economic news.

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