Taxing without purpose

We hope that all our American supporters had a great thanksgiving. This year's dinner should have cost slightly less than last, according to the American Farm Bureau Federation (AFBF).

The AFBF reckons the cost in 2025 for a traditional Thanksgiving dinner for 10 was the lowest since 2021. But 2025's dinner was $39.47 more expensive than the same in 1975 - which shows how inflation can damage fiat currency's purchasing power. Today's Dollar buys only 16.61% of what it got in 1975.

Mind you, the same holds true for other fiat currencies. Today's Pound today would cover just about 9% of what it bought in 1975.

The strength of the Pound might have been tested this week, after the latest British government Budget. The Budget was preceded by weeks of leaks and rumors, which were silenced on Wednesday when the Chancellor delivered the Budget. The Office for Budget Responsibility (OBR), set up in 2010 to provide independent and authoritative analysis of the country's public finances, forecast the UK's tax burden will now rise to an all-time high of 38.3% of gross domestic product (GDP) by 2030. It added that "inflation will stay high for longer".

Labour governments are good at taxing and spending. But they are no good at stimulating economic growth, raising productivity, or cutting demand on public services. So this Labour government is good for gold (its policies will support a continued gold price rise) but it's bad for the UK's economic future. For what the Chancellor, Rachel Reeves, has done is the complete reverse of what she and her government earlier promised.

Government mendacity

The Labour Party promised it wouldn't increase taxes on working people, not increase the basic or higher rates of income tax, nor increase national insurance, which in America is the mandatory social security tax known as Federal Insurance Contributions. It also said it would not increase value added tax rates.

But Reeves decided she wanted to persuade markets that her government can create stability. So she needed to raise more tax revenues somehow.

So she decided to freeze tax thresholds for three years longer than first planned. This means that over time more people will be dragged into paying any tax and also higher rates of tax. By 2031 the OBR calculates that 25% of workers will be forced to pay the higher rate of tax.

In a Budget of last year Reeves raised national insurance costs for employers from 13.8% to 15%, and simultaneously lowered the level at which employers are required to pay that tax from £9,100 to £5,000. Most believe that the higher cost of national insurance has already significantly cut employment. Rachel Reeves said in January this year she would go "further and faster" to kick start economic growth.

But that pledge is already destined to fail, according to the OBR. Taxes will continue rising but productivity continue falling.

OBR chart for future economic moves in the UK

A bunch of rancid sandwiches

The UK Budget has been hailed as a "smorgasbord", an array of small policy shifts, but rather than a Swedish delight it more resembled a bunch of rancid sandwiches.

The unpalatable spread had a litter of small-scale tax moves. A new tax on electric cars, higher taxes on betting, extra money squeezed from owners of homes worth more than £2 million, and a cap on 'salary sacrifice', in which employees can reduce their gross salary and the employer agrees to pay the same amount into the employee's pension. So-called 'premium' cars will be excluded from the Motability scheme, which permits those on certain disability benefits to lease vehicles more cheaply.

But while the government plans to raise £26 billion more by tax rises it proposes no cuts in government spending. It will, for example, remove the two-child limit on welfare benefits. That'll cost more than £9 billion. Last year the Labour government retreated from making cuts to welfare payments after a threat of rebellion from its own members of parliament.

Government spending as a share of GDP by 2030 will remain 5% above the pre-pandemic level. 10% of public spending now goes on paying interest on government debt. All the rancid sandwich display does is stuff the mouths of the Labour Party's members of parliament. It does nothing to stimulate economic growth.

The Prime Minister, Keir Starmer, regularly makes speeches in which he says his government's policies are about putting "country first, party second...You cannot move our country forward with gimmicks and gestures." And yet he has backed a Budget that has nothing to it apart from gimmicks and gestures. We should not be surprised by this. All governments share one mission - self-preservation.

The OBR has made an optimistic forecast for the UK's public sector net borrowing, its fiscal deficit, for the next few years. It says this deficit will fall from almost 5% of GDP in the current financial year to just over 2% of GDP in 2029-30.

The optimism might fail given the hurdles Britain faces - slowing productivity, the already high tax level will make future tax rises difficult, public spending cuts will be difficult to achieve given the ageing population. The economic malaise will continue. And given that the UK's economic uncertainty is being repeated everywhere, the gold price will go on rising.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.