UK FISCAL: Possible fiscal policy under Rayner and why the market cares

With the difficulties faced by Starmer and Angela Rayner favourite to replace him (possibly after the local / Scottish / Welsh elections in May), the market is focusing on how much fiscal policy could move to the left under a Rayner premiership. As we noted, this is driving yields higher and the pound lower today (see earlier coverage). The Telegraph reported on a leaked memo sent from Rayner to Reeves ahead of the Spring Statement (that was delivered in March 2025, although the Telegraph story dates to May 2025).

• The main difference was a reversal to the High Income Child Benefit Charge. Note this is a different policy to the two child cap (which was removed in the Autumn Budget). It concerns payments made to parents of GBP26.05/week for the first child and GBP17.25/week for each additional child. At the Conservative's final Spring Budget (2024) the threshold to receive this in full was increased from GBP50k to GBP60k, and the threshold at which it would be completely withdrawn was increased from GBP60k to GBP80k. Rayner was supportive of reversing these changes, costing GBP600mln.
• She also supported raising the bank surcharge from 3% to 5%, which would raise GBP500-700mln and take bank tax rates to around 30% and supported larger increases to Divided Tax income tax rates than were brought in the Autumn Budget. She also supported reintroducing a pension lifetime allowance.
• She also supported tightening access to the welfare system for migrants.
• Rayner was also seen as supporting the decision to remove the two child cap on total benefits that could be claimed (albeit that wasn't mentioned in this memo).
• All together these policies are painted as supporting the working classes at the expense of middle classes - more so than the Starmer / Reeves premiership. Furthmore, the market will probably worry that these were ideas that Rayner thought could be pushed through the current administration and if she was Prime Minister she would want to push policy even further to the left. There is nothing very specific on this at present, but that will make markets wary. It's also not really known how supportive she is of the current fiscal rules - and that uncertainty will make UK assets less attractive when odds of a change in Prime Minister are highest.