Blighted Blighty
For its part, the UK is still paying for its decision to leave the EU in 2020, stumbling from crisis to crisis. In the last 2-3 years, industrial action has stalled the country's healthcare and transportation sectors, with strikes ongoing despite public sector pay rises offered by the Labour government. This is having knock-on effects, with surgical waiting lists now stretching beyond the horizon.
In dire need of corrective surgery is Britain's water sector. Thames Water, the country's largest water company serving around 16 million people in London and the south-east, has debts of about $18bn but urgently needs to invest in infrastructure and environmental compliance. Many suspect that a government bailout will be needed.
Yet cash is not awash in Chancellor Rachel Reeves's Treasury. In November, she will present the Budget for the 2026-27 fiscal year, but is already under pressure from every direction, with exhausted public services, public debt approaching 97% of GDP, and a business community wary of tax hikes targeting companies and the wealthy, burdens that would inevitably trickle down to employees and customers.
Mounting anxiety
Anxiety has now spread to banking, with reports that Reeves intends to target the sector with additional taxes after the idea was floated in a report by the Institute for Public Policy Research (IPPR) think-tank, which prompted a sell-off of shares. Paul Thwaite, chief executive of NatWest (formerly the Royal Bank of Scotland), warned that "a strong economy needs strong banks," while David Postings, the chief executive of UK Finance, said extra taxes on banks risked undermining their international competitiveness.
However she does it, Reeves will need to plug a yawning fiscal gap, one that she hopes will not exceed £20bn. Hanging over her is an inflation rate that nudged up to 3.8% last month, nearly double the Bank of England's 2% target. Borrowing costs are the highest they have been in years, and the government's debt servicing bill now runs to £100bn annually—roughly 10% of total spending.
Lacking sympathy, analysts are unimpressed. "Rachel Reeves has made poor choices in her brief spell as chancellor," journalist Lionel Barber wrote in The Financial Times, which he edited from 2005 to 2020. "She picked the wrong fights, burned through political capital, and ended up captured by Treasury orthodoxy." His comments reflect a dent in business confidence in the government of Sir Keir Starmer, who is now in his second year of a five-year parliamentary term.
No more excuses
The constant refrain of having "inherited an unprecedented mess" is becoming wearisome. True, there have been external factors—war in Ukraine, US tariffs, rising interest rates, and dizzying energy prices—but solutions are still few on the ground. As a result, nationalists and the far-right are filling the vacuum, scapegoating migrants and refugees. The need to increase defence spending makes Reeves' task even harder.
US President Donald Trump recently completed his historic second state visit to the UK, at one point suggesting to Starmer in a press conference that he use the military to deter migrants, pouring fuel on the fire. With populists like the right-winger Nigel Farage rising in the polls, Reeves and Starmer will know that the clock is ticking to prove their ability to deliver growth and recovery. Tough choices lie ahead. After the grandeur and flummery of Trump's visit, the view on the ground is decidedly less rosy.
