UK Budget boosts taxes to all-time high

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Good morning from the Financial Times. Today is Thursday, November 27th. And this is your FT News Briefing. Crypto just can't catch a break this week. And India's booming steel production comes with a pretty unfortunate side effect. Plus, if you haven't noticed, the UK budget is like the FT's World Cup. We take it very seriously. So we're going to geek out over all of yesterday's numbers. I'm Mark Filippino, and here's the news you need to start your day.

S&P Global is raising concerns about the world's biggest stablecoin. The ratings agency released a note on Wednesday downgrading its assessment of Tether's assets from constrained to weak. It's the lowest measure that S&P doles out. Tether operates a dollar-backed stablecoin, often called USDT. It's the biggest stablecoin with about $184 billion in circulation.

Now, this form of digital cash is usually backed by high-quality assets like U.S. treasuries. But S&P flagged an increase in Tether's high-risk assets backing the stablecoin like Bitcoin, precious metals, and corporate bonds. Those now account for 24% of total reserves. The ratings agency also warned about Tether's, quote, limited transparency on reserve management. Tether responded saying it strongly disagrees with the characterizations presented in the report.

UK Chancellor Rachel Reeves set out her budget yesterday. It marked the most important day of the year for the government's fiscal policy. The budget takes the UK's tax burden to an all-time high. It'll reach 38% of GDP by the end of the Parliament in 2029. Here to walk us through all the finer points of the budget is the FT's economics editor, Sam Fleming. Hi, Sam. Hi, Mark.

So, Sam, give us a rundown of the other key details announced in yesterday's budget. Sure. So this was a tax-raising budget, and it's a £26 billion increase by the end of the Parliament, which runs to fiscal year 2930. The reason for this is partly a downgrade to the productivity outlook by the Office of Budget Responsibility, which is the government's fiscal watchdog.

but also to fund higher spending commitments and to build a bigger buffer against the government's fiscal rules, which require it to balance the current budget by the end of the parliament. I should add, Mark, unusually the OBR, the Office of Budget Responsibility, accidentally released its report on the budget even before the Chancellor had stood up to make her speech, which made this an unusually chaotic event.

Yeah, it was quite the surprise for everyone. Sam, I found something that our colleagues wrote really helpful when it came to the budget. They said that this needed to satisfy a few different audiences. I want to take them one at a time. First, with how did members of Reeves' own Labour Party feel about the budget? Because, you know, the party is under a ton of pressure right now. I think the response from Labour MPs will be broadly positive to this budget.

There were plenty of taxes which hit higher earners, so that will have gone down fairly well. It was a budget that announced a removal of an existing cap. on child benefit claims to two children which has been extremely unpopular among Labour MPs because of its impact on child poverty. And then broadly speaking this was a package which aims to raise taxes.

in order to fund higher spending. It will have been broadly welcomed by Labour MPs, especially given a rather more worrying prospect of income tax hikes, which many were expecting going into it. Now, obviously, one of the key indicators of a budget success is how the markets react to it, especially the gilt market. What's been the response there? When the OBR accidentally released its budget report...

There was a lot of volatility in the markets, as you'd expect. The markets seem to have settled a fair bit since then and have broadly been fairly calm in response to this budget. And I think the reasons for that... are firstly the decision of the Chancellor to strongly increase the amount of headroom she holds against her fiscal rules. And I think broadly they will reassure the economic outlook, despite the downgrade to productivity growth.

wasn't as bad as they'd been led to expect. In particular, there were quite a lot of... cross currents in the OBR economic forecast, which helped revenue even as the productivity downgrade hurt revenue. And that meant that really the economic forecast was... overall relatively benign going into this budget. And that gave Rachel Reeves the space she needed to boost her budget headroom. Lastly, and maybe most importantly, I want to talk about the reaction by the public.

How is this going to impact British citizens? Well, one of the reasons Rachel Reeves decided not to raise income tax rates is it would be such a visible tax increase who would immediately see if their basic rate of income tax went up by one or two. that would be a very seismic, really, moment. So the way she's raising taxes is by extending a freeze on personal tax thresholds, which effectively means there's people's earnings.

go up, they can tip into higher tax bands, raises more money for the government, but isn't as visible. Overall, this will drag on disposable incomes and drag on the outlook for living standards. I think the other point about this is that while the productivity downgrade by the OBR didn't deliver a massive fiscal hit overall to the Chancellor,

It is still a pretty sorry indictment of the growth outlook for the UK. If productivity growth is very weak in the coming years, as the OBR is suggesting, that is going to mean... much slower growth in improvements in living standards and incomes, and therefore a pretty dismal outlook for the UK economy in general. Sam Fleming is the FT's economics editor. Thanks, Sam. Thanks, Mark.

India has doubled its steel production in the past decade and that has made the country the world's second largest steelmaker. But the industry creates a ton of pollution and there are urgent calls to decarbonize the sector. I'm joined by the FT's Mumbai Bureau Chief, Chris Kay, to discuss this. Hi, Chris. Hi there. So what's behind the growth of India's steel industry? Yeah, so as you pointed out, India has expanded that sector at a rapid clip.

really growing to support the country's expanding economy. And the government is really trying to boost that capacity even further. And this makes India an outlier in the global industry, which is really struggling with slowing demand. Growth in the industry in India is forecast to rise by about 6% a year through 2035.

A lot of the country's steelmakers are very buoyant about this. The CEO of Tata Steel, one of the biggest producers here, recently told us that India is the best story for the steel industry globally because of all the infrastructure that's still to be built out and is under-invested in. So, as I mentioned, the pollution factor in all this is something that's drawing a lot of criticism. How bad is that pollution?

Absolutely. As much as India is an outlier in the world on this, it's also oversized in the amount of emissions it produces from the industry. Steel accounts for about 12% of national carbon emissions, which is the highest of any industrial sector. And that's even larger than the global average of about 8%. So it's a real oversized problem here as it grows. And the process is dominated by coal and large amounts of it because India's iron ore quality is low.

needs more of that to process it. And about half of the production comes from these kind of smaller factories, which are poorly regulated, to say the least, and often less equipped to deal with the polluting side effects or even just often unwilling to do so. So that's created a lot of on-the-ground concerns among locals who live close to these plants. I'm curious, Chris, is India facing any pressure from outside the country to clean up the industry?

internationally. There is also pressure that is mounting, most notably, I think, from the start of next year when the EU will implement its... carbon border adjustment mechanism, so CBAM in short, which is essentially attacks on polluting overseas producers.

to stop them undercutting EU industry with cheaper and dirtier imports. And India is expected to be disproportionately affected by those new rules, even compared with, say, China. So Chris, what are you looking out for next? Are there any efforts from...

either the government or players from inside the industry to do anything about the pollution? The government is trying to come up with some new rules and potentially financial incentives to... encourage the use of cleaner steel and we are seeing some of the bigger producers take steps in that direction but I think it's still a long way off to really cleaning up the industry as a whole.

I mean, when I visited some of the largest steel plant in India run by JSW, which is a big producer here in the south of the country, they were keen to show off various efforts they are doing. So increasing energy efficiency, more use of renewable power.

are in the process, various pilot projects in carbon capture and green hydrogen to reduce the amount of coal being used and the emissions per tonne. But even then, I think most of the big players who are doing this at the moment, it's very much on a small scale. All of them concede that for a wider use of...

greener fuel, such as green hydrogen. It's totally uneconomical at the moment and too expensive, they're saying. The government will have to step in with wide-scale support and incentives to really push the smaller players to start cleaning up on a bigger scale. Chris Kay is the FT's Mumbai Bureau Chief. Thanks, Chris. Thank you.

Before we go, a very happy Thanksgiving to our listeners in the United States and a quick programming note. Tomorrow, we're going to have a special edition of this show looking into the role artificial intelligence plays in the global defense industry. Now... and in the future. The biggest anxiety that people have around AI being used for warfare is this scenario where the AI is actually making decisions. And though that's not happening...

Right now, per se, I think it's a future that military leaders are planning for and planning around and actively building. Keep an eye out for that one in your podcast feed tomorrow. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT news briefing. Check back tomorrow for the latest business news.

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