There will be plenty of victims of the crash currently playing out across the global financial markets. A few hedge funds may well fail. The trading desks of the main investment banks will be watching their annual bonuses disappear. And ordinary investors will be nursing some big losses on their investment portfolios. But the most prominent victim might well be the British Chancellor Rachel Reeves. She staked everything on meeting her ‘fiscal rules’ – and it now looks certain her gamble has been lost.
Only a few weeks ago, in the Spring Statement, Reeves reassured everyone that she had made all the adjustments necessary to make sure she stayed within her fiscal rules, and to keep the economy on a stable path. And yet, just as she did in last year’s Budget, she left herself with just £10 billion of headroom in case the economy didn’t perform as she expected it would. In effect, she took a big gamble that nothing would go wrong.
How’s that working out? Not so well, as it happens. President Trump’s imposition of a huge new range of tariffs has crashed the stock markets worldwide. The FTSE-100 index was down by 5 per cent at one stage today and the Hang Seng in Hong Kong suffered its worst one-day fall of the 21st century so far. Meanwhile, Wall Street is likely to be drowning in red ink later today. It is turning into a full-blown market crash.
With grim inevitability, this will damage the British economy – and the government’s finances. The Treasury will collect less capital gains tax, less income tax from traders, less corporation tax from investment companies, less stamp duty especially on high-end properties, and – if there is a recession – a lot less tax from the rest of us. Will Reeves end up missing her fiscal rules? We don’t know for sure yet, but you should probably bet your Apple shares – given they are not worth much anymore – on it. It looks impossible that Reeves will be able to stay within them now.
Of course, it is not Reeves’s fault that the market crashed. But it was her decision to leave so little headroom just in case anything were to go wrong. And it is also her fault that huge tax rises on businesses also come into effect today, even though we knew that President Trump would announce his tariffs at the start of April.
In reality, Reeves took a high-stakes gamble with the British economy, betting everything on navigating a narrow path to growth. It is now clear that she has lost. Her credibility has been shredded – and it is hard to see how she can survive having to re-write her plans all over again.
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