UK FISCAL: How much could UK income tax changes raise?
Sep-19 13:54
- A 1ppt increase in the basic rate from 20% to 21% (which is payable from GBP12,570-50,270) is estimated to raise GBP6.9bln in 2026/27, rising to GBP8.25bln in 2027/28 (based on the ready reckoners from the Treasury). However, if the higher rate (applicable from GBP50,270 to GBP125,140) was increased it would need to be increased by around four times this amount to yield the same amount with a 1ppt increase from 40% to 41% expected to raise GBP1.6bln in 2026/27 and GBP2.15bln in 2027/28. Raising the additional rate (applicable above GBP125,140) from 45% to 46% would only raise GBP145mln.
- However, alternatives could include adding additional tax bands. For example a 25% marginal rate from GBP40-50k and/or lowering the additional tax rate to start at GBP75k rather than GBP125k (between GBP100k-125k there is currently already an effective marginal tax rate of 60% as the personal allowance is lost).
- These options would likely appeal more to Labour’s core voters and fit in with the argument that those with broadest shoulders should pay the most. The former policy is not costed in the document but reducing the higher rate allowance by GBP3,770 to around GBP46.5k would raise GBP5.4bln, so we would estimate that introduced a 25% marginal rate from GBP40-50k would raise somewhere between GBP4-5bln.
- Lowering the personal allowance by GBP100 would raise GBP810mln in 26/27 and GBP1.05bln in 27/28 – but this seems very unlikely as it would penalise the lowest earners. A longer freeze for the personal allowance seems a likely policy, however.
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EUROPEAN INFLATION: Analysts Stick To Previous ECB Calls After July Final HICP
Aug-20 13:40
Analysts aren't unanimous but on balance view the final July HICP release as favourable in terms of the ongoing disinflation process in the Eurozone. They stick to their previous calls on the ECB rates path ahead. Some highlights:
- Commerzbank: "Volatile service prices distorted the core rate slightly downward [...] As this effect is unlikely to be lasting, we are adjusting the core rate upwards accordingly. Without these volatile components, the core rate would therefore have been 0.24% in July (seasonally adjusted month-on-month rate). [...] Even with a slightly weaker core rate, year-on-year inflation is likely to remain above the ECB's forecast in the coming months. We therefore consider further interest rate cuts by the ECB to be unlikely."
- Goldman Sachs: "Looking through the Easter-related distortions to services inflation, our summary indicator of sequential underlying inflation has been broadly stable over the past few months, but ticked down in July by 5bp to 0.18%mom. The change in our sequential summary measure reflects a sequential deceleration across most of the metrics we track"
- JP Morgan: "Our inclination is to view today’s report as constructive: we do need a run of soft monthly core price gains but see a good chance of this. The firmer currency, possible China deflation effects and, crucially, the moderation in wage growth argue in this direction [...] If core goods inflation sees payback in August, Euro area core inflation could slip to 2.1%oya and remain at that level in September. If correct, it would undershoot the ECB staff forecast of 2.3%oya for 3Q25. We then see it slipping below 2%oya early next year. [...] We continue to expect a further ease but have delayed this recently to October. This does, however, require the ECB to take more seriously the easing bias already in the staff projections."
EURIBOR OPTIONS: Put Condor Buyer
Aug-20 13:37
ERH6 97.9375/97.8125/97.6875/97.5625p condor, bought for half in 7.5k.
EQUITIES: US Cash Opening Calls
Aug-20 13:26
SPX: 6,408.4 (-0.0%); DJIA: 44,953 (+0.1%/+31pts); NDX: 23,338.8 (-0.2%).
