The winners and losers in the UK Budget

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0:32Good morning from the Financial Times. Today is Thursday, October 29th, and this is your FT News Briefing. Labour played it safe with the UK budget, but will it be enough? So the big question really coming out of this budget is where's the money going to come from when it comes to paying for all these commitments that Labour says it's going to meet? And Israel is heading into political uncertainty after its election. Plus, we look at the downfall of a U.S. legal giant. I'm Sonia Hudson, and here's the news you need to start your day.

1:19It's been teased. It's been speculated over. It's been worried about. And now this year's autumn budget has finally made its debut. Chancellor John Healy released his first budget yesterday. And as the dust settles, we've got the FT's Sam Fleming here to talk us through it. Hi, Sam. Hi, Anne. So what was the government trying to do with this budget? And have they been able to pull it off? I think the government had two main goals in this budget. The first was to reassure government bond markets that this new government under Prime Minister Andy Burnham will take its fiscal responsibility seriously and won't ramp up borrowing dramatically.

1:56And I think on that basis, they succeeded in the sense that the government bond market did not sell off in response to the budget. And the second was to show that they are responsive to the pressure on households because of rising energy costs that they face, gas bills going up, electricity bills going up. And so they offered some modest relief against those rising energy costs in a budget that John Healy, the new chancellor, said is aiming to provide some breathing space, both to households and to businesses. All right. Well, who are the winners of this budget? Notionally, the winners would be households in the sense that for some households, there will be some relief against council tax, local property tax, which will help a little bit against rising energy bills.

2:40There's an extension to a freeze on the duty that's paid on gasoline or petrol and an extension to a cut and VAT on electricity bills. But I think we need to put this in a broader context. These are fairly minor and temporary giveaways in the face of an absolutely brutal squeeze on household disposable incomes because of high inflation. Bank of England potentially set to increase interest rates next month. So an awful lot of pressure on households. These are modest efforts to alleviate some of the pressure, but only really a very modest imprint in what is a very, very rapidly rising cost of living.

3:18All right. What about the losers in this budget? In terms of the losers, you'd have to single out banks, really, I think, who face an increase in a surcharge on corporation tax as a result of this budget. So they would rank as among the losers. And then savers and property owners are going to face slightly higher taxes on income as well as a result of this budget. Yeah, tell me a little bit more about the bank tax, because we had been anticipating a bigger increase than Healy ultimately announced. Certainly the banks were expecting to be hit by higher taxes because they are making very high profits at the moment.

3:58In the end, frankly, it's not a huge levy. So this surcharge on profits is going to increase from 3 % to 6%. And it's only going to last for 15 months. So frankly, it's really not in the grand scheme of things a very significant hit. while Labour was keen to show that, you know, well-off corporations are bearing some of the burden of its fiscal consolidation. It really didn't want to go too far and alienate the sector, given it is a major contributor to the UK economy. Sam, there have been some criticisms of this budget, that it didn't go far enough, or that, you know, Healy kind of kicked some of the problems down the road.

4:39Do you think that he needed to do more? I think those are valid criticisms. This budget was fairly modest in scope. Now, that had the benefit of not really scaring financial markets, but it leaves enormous questions unanswered when it comes to the fiscal position of the current government. This is a government which pledges to raise defense spending rapidly in order to meet NATO commitments. It faces a very rapidly rising welfare bill. So the big question really coming out of this budget is where's the money going to come from when it comes to paying for all these commitments that Labour says it's going to meet?

5:15This budget really stores up some big answer questions for another day. All right. Well, Sam, we will have to have you back on to hopefully answer some of those unanswered questions. Sam Fleming is the FT's economics editor. Thanks, Sam. Thank you.

5:34Israel is still counting votes from its election earlier this week, and no one coalition of parties has a majority. That could mean months of intense negotiations and political chess for Prime Minister Benjamin Netanyahu and his rival Gadi Eisenkot. Their two coalitions will each try to form a government. And the big X factor is how the Arab parties impact that process. The FT's Andrew England is here to explain. Hey, Andrew. Hi. So where are we at with these election results? You know, why are the Arab parties so pivotal here? Well, Netanyahu's far-right coalition, which has been in power for the last four years, has garnered 53 seats, while the Jewish Opposition Alliance has garnered 48 seats.

6:21That means that neither party has enough for a working majority in the 120-member Knesset or Parliament. Now, Palestinians with Israeli citizenship, which make up about a fifth of the country's population, we believe they turned out in record numbers. And that's giving two Arab parties collectively a good chunk of seats, up to 19 seats, we think. So that means that they could be, if the Jewish opposition bloc was willing to align with them, they could potentially be the kingmaker in this. Yeah, tell me more about the political calculus that the Jewish opposition bloc is doing here with the Arab parties, because I can't imagine that's an easy decision to make.

7:06No, I mean, some leading members of that bloc have throughout the campaign ruled out cooperating with Arab politicians, Arab parties. But there's always this kind of toxicity towards Arab politicians in Israeli politics. It's a country where the Palestinian community has been on the periphery. It faces institutional discrimination. And for Jewish parties that are seeking the Jewish vote, they see it as a political risk to align themselves with Arab parties, particularly in the wake of the October 7th attack. The question now is whether their desire to unseat Netanyahu, which is the one thing that really binds this opposition bloc together, will be the tipping point for them to say, this is our route to power and we're going to work with the Arab parties.

8:03Okay, so Andrew, we've been talking a lot about this one potential path to forming a government. What are some of the other possibilities that can unfold in the coming weeks? Well, we're going to have a political deadlock in the coming weeks, I think. I think that's clear. Basically, the Israeli president, once the final results are out, he will determine which leader he thinks has the best chance to form a coalition. So if Netanyahu is given that chance, I mean, he'll already be plotting about plucking away members of Eisenkot's opposition camp. Another possibility is that Eisenkot comes under pressure to form a unity government with Netanyahu.

8:43That's a scenario that some believe is a long shot. Or we get a scenario where nobody's able to form a working coalition and Israel goes back to elections. And that has happened before. If you ask me now, I would say that's probably the likeliest scenario. Andrew, what does this election so far tell you about the state of Israeli politics right now? Israel generally is a very polarized country. that Netanyahu is incredibly divisive. You know, he still has a very strong base that believes that, you know, he is the leader that will protect them and will protect Israel as a state. And the other thing that it tells you is that if you look at the voting, the country is clearly veered further to the right.

9:32A lot of liberal Israelis saw this election as pivotal. They fear that if Netanyahu and his allies from the far right somehow managed to secure another term, then the very values and identities of Israel, the state, are at risk of being eroded. So, you know, this really is a pivotal moment, an inflection point for Israel. Andrew England is the FT's Middle East editor. Thanks, Andrew. Thank you.

10:05One of the oldest, largest American law firms may soon be no more. Weil, Gotchal, and Mangis told partners yesterday that the law firm should dissolve. That's according to three people familiar with the matter. Weil started considering winding down this week after a potential merger collapsed. The decision marks the stunning downfall of a very prestigious law group. The firm's been in turmoil after several of its top partners left to work for rivals earlier in the year. And they took teams of lawyers with them. Weill's situation really shows how an exodus of talent can hit even large, financially stable law firms.

10:52Alphabet gave investors a bit of a scare, just in time for Halloween. Google's parent company reported third-quarter earnings yesterday, and it said it boosted spending on AI to more than$50 billion over the past three months. The company's cash burn was much larger than Wall Street had anticipated. That massive AI spending spooked investors. Plus, its revenue and profit came in lower than expected. Alphabet shares dropped after the bell. Meanwhile, Oracle helped soothe some AI jitters during its investor day yesterday. The company gave new long-term forecasts with better-than-expected free cash flow and a moderate amount of borrowing.

11:35Oracle's share price jumped by double digits.

11:43The Federal Reserve is in wait-and-see mode. The U.S. Central Bank decided to keep interest rates on hold yesterday, even though the war in Iran is keeping prices higher. There hasn't been much good news since the Fed raised rates in mid-September. In fact, you know, the outlook looks a little bit worse. That's the FT's U.S. economics editor, Claire Jones. However, the Fed is an institution that is conservative with a small C. It likes to take a patient approach to things. And they'd raised interest rates in September. The best guess was that they'd do it again in December and that they'd wait and see.

12:23And the inflation news wasn't quite dramatic enough to really move the needle as soon as yesterday. So yesterday's rate hold wasn't a surprise. Fed Chair Kevin Warsh and other central bank officials had laid the groundwork for it. The timing is interesting, though. This is the last Fed meeting before the U.S. midterm elections next week. Some people thought in that sort of climate, the Fed wouldn't want to be seen to be interfering with politics and would prefer to hold interest rates. However, Walsh was adamant yesterday that politics did not play a role in the decision to hold interest rates.

13:03Politics played no role in the decision. I just spent two days with my colleagues upstairs. I didn't hear an utterance about politics. What he said they needed to see instead was more evidence that inflation pressures are becoming worse, more widespread, and that the Fed needs to do more to raise interest rates to bring inflation under control. That's the FT's U.S. economics editor, Claire Jones.

13:36You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest news from the Financial Times.

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