UK FISCAL: Reeves & Starmer To Prepare Ground For Tax Hikes In Budget-Guardian
The Guardian reported late on 7 August that, "The chancellor and prime minister will begin to prepare the ground for tax rises and reforms from September as part of a strategy to prepare the country for a difficult budget that could be held in November". The article claims that Chancellor of the Exchequer Rachel Reeves intends to stick to the Labour manifesto commitment of not raising income tax, VAT or employee National Insurance contributions and to her fiscal rules, but that former PM Gordon Brown's call for a levy on online gambling is set to be heeded.
- The article notes that, following the 5-4 second vote split decision by the BoE on 7 August, "the MPC warned tax-raising measures in the chancellor’s first autumn budget had contributed to the rekindling of inflationary pressures hitting shoppers in the pocket across the country." With food price inflation set to remain elevated, the gov't may prove wary of burdening businesses with further tax hikes that could push prices up further.
- With PM Sir Keir Starmer's centre-left Labour party trailing the right-wing populist Reform UK by double-digits in some opinion polling, the gov't finds itself in a difficult position. A recent report by the National Institute of Economic and Social Research outlined that “moderate but sustained” tax hikes would be required to eliminate a GBP41.2bln deficit and restore GBP10bln of fiscal headroom.
- With the tax burden as a percentage of GDP forecast to hit the highest level on record by 2027/28, it is unclear how the gov't will balance competing priorities, including public sector demands for higher wages, financial market concerns about the UK's fiscal trajectory and debt dynamics, and continued voter concerns about cost-of-living issues.
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SWITZERLAND: Potential 200% US Pharma Tariffs - Impact on Switzerland [2/2]
- JP Morgan note generally that "for branded drugs, production had in the past shifted to Europe for tax reasons, but this is no longer so relevant. Such a high tariff [referring to the 200% figure] would be more of an issue for generic drugs though, where production is overseas for traditional cost of manufacturing reasons" - domestic Swiss production tends to be centred in the branded segment, which would then arguably be more akin to relocation to the US.
- In that context, our credit team does view recent US investment projects by Swiss pharmaceutical firms as significant.
- Leerink Partners meanwhile believe Tuesday's announcement by the US administration is net positive for the pharma industry “because tariffs will not be implemented immediately…and it is unclear if the administration will follow through in the future”, according to a note seen by CNBC.
- Details on the measures “will come at the end of the month,” Commerce Secretary Howard Lutnick said after the cabinet meeting (also via CNBC).
SWITZERLAND: Potential 200% US Pharma Tariffs - Impact on Switzerland [1/2]
President Donald Trump on Tuesday threatened to impose up to 200% tariffs on pharma products “very soon”. However, the administration would “give people about a year, year and a half” to incentivize production relocalisation into the US, and Switzerland might get proprietary assurances on the sector in a US/SZ trade deal, limiting the potential impact of measures imposed by the US more generally. Swiss pharma equities saw some volatility this morning but remained within recent ranges - supporting the view of a limited impact.
- Remember that on July 4, Bloomberg wrote: "The draft of a trade accord between the US and Switzerland contains a provision that the European country will receive preferred treatment in the ongoing national-security investigations to avoid tariffs on pharma exports, according to people familiar with the matter" but "the clause doesn't constitute a guarantee that Washington will hold off on putting tariffs on the industry".
- The Swiss government has agreed to that draft accord according to local news. There are "positive signs" but no agreement yet from the US, according to the reports.
- Swiss "pharmaceuticals, vitamins, diagnostics" exports were CHF122.1bln in the 12 months to May 2025 in nominal terms - that is around 43% of total Swiss exports during that time, or around 6.8% of GDP, while Swiss exports to the US (across products) were CHF58.4bln.
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