Chancellor Rachel Reeves is now performing a high-wire act, with the financial markets watching her every move for signs of a misstep. The £6.4 billion plunge in bank stocks on Friday, following a windfall tax proposal, has dramatically raised the stakes, turning the autumn budget into a perilous balancing act.
On one side of the wire is the need to maintain fiscal credibility by addressing the £40 billion budget deficit. This pushes the Chancellor towards revenue-raising measures, such as the bank tax proposed by the IPPR thinktank.
On the other side is the need to maintain market confidence. As Friday’s rout demonstrated, a move perceived as anti-business or punitive could cause her to lose balance, with severe economic consequences. The market is effectively the safety net, but it’s one that could be withdrawn at any moment.
Every statement and signal from the Treasury will now be scrutinised intensely. The Chancellor must somehow find a path that reassures the markets of her pro-growth intentions while also convincing the public of her fiscal responsibility. It is a high-wire act with very little room for error.