Russia’s central bank on Friday filed a lawsuit in Moscow against Brussels-based Euroclear, which houses most of the frozen Russian assets that the EU wants to use to finance aid to Ukraine. The court filing comes just days before a high-stakes European Council summit, where EU leaders are expected to press Belgium to unlock billions of euros in Russian assets to underpin a major loan package for Kyiv.   “Due to the unlawful actions of the Euroclear depository that are causing losses to the Bank of Russia, and in light of mechanisms officially under consideration by the European Commission for the direct or indirect use of the Bank of Russia’s assets without its consent, the Bank of Russia is filing a claim in the Moscow Arbitration Court against the Euroclear depository to recover the losses incurred,” the central bank said in a statement. Belgium has opposed the use of sovereign Russian assets over concerns that the country may eventually be required to pay the money back to Moscow on its own. Some €185 billion in frozen Russian assets are under the stewardship of Euroclear, the Brussels-based financial depository, while another €25 billion is scattered across the EU in private bank accounts. With the future of the prospective loan still hanging in the air, EU ambassadors on Thursday handed emergency powers to the European Commission to keep Russian state assets permanently frozen. Such a solution would mean the assets remain blocked until the Kremlin pays post-war reparations to Ukraine, significantly reducing the possibility that pro-Russian countries like Hungary or Slovakia would hand back the frozen funds to Russia. While Russian courts have little power to force the handover of Euroclear’s euro or dollar assets held in Belgium, they do have the power to take retaliatory action against Euroclear balances held in Russian financial institutions. However, in 2024 the European Commission introduced a legal mechanism to compensate Euroclear for losses incurred in Russia due to its compliance with Western sanctions — effectively neutralizing the economic effects of Russia’s retaliation. Euroclear declined to comment.

BRUSSELS — The EU has struck a political agreement to overhaul the bloc’s foreign direct investment screening rules, the Council of the EU announced on Thursday, in a move to prevent strategic technology and critical infrastructure from falling into the hands of hostile powers. The updated rules — the first major plank of European Commission President’s Ursula von der Leyen’s economic security strategy — would require all EU countries to systematically monitor investments and further harmonize the way those are screened within the bloc. The agreement comes just over a week after Brussels unveiled a new economic security package. Under the new rules, EU countries would be required to screen investments in dual-use items and military equipment; technologies like artificial intelligence, quantum technologies and semiconductors; raw materials; energy, transport and digital infrastructure; and election infrastructure, such as voting systems and databases. As previously reported by POLITICO, foreign entities investing into specific financial services must also be subject to screening by EU capitals. “We achieved a balanced and proportionate framework, focused on the most sensitive technologies and infrastructures, respectful of national prerogatives and efficient for authorities and businesses alike,” said Morten Bødskov, Denmark’s minister for industry, business and financial affairs. It took three round of political talks between the three institutions to seal the update, which was a key priority for the Danish Presidency of the Council of the EU. One contentious question was which technologies and sectors should be subject to mandatory screening. Another was how capitals and the European Commission should coordinate — and who gets the final say — when a deal raises red flags. Despite a request from the European Parliament, the Commission will not get the authority to arbitrate disputes between EU countries on specific investment cases. Screening decisions will remain firmly in the purview of national governments. “We’re making progress. The result of our negotiations clearly strengthens the EU’s security while also making life easier for investors by harmonising the Member States’ screening mechanism,” said the lead lawmaker on the file, French S&D Raphaël Glucksmann. “Yet more remains to be done to ensure that investments bring real added value to the EU, so that our market does not become a playground for foreign companies exploiting our dependence on their technology. The Commission has committed to take an initiative; it must now act quickly,” he said in a statement to POLITICO. This story has been updated.

BRUSSELS — Britain’s top Europe minister defended a decision to keep the U.K. out of the EU’s customs union — despite sounding bullish on a speedy reset of ties with the bloc in the first half of 2026. Speaking to POLITICO in Brussels where he was attending talks with Maroš Šefčovič, the EU trade commissioner, Nick Thomas-Symonds said a non-binding British parliamentary vote on Tuesday on rejoining the tariff-free union — pushed by the Liberal Democrats, but supported by more than a dozen Labour MPs — risked reviving bitter arguments about Brexit. Thomas-Symonds described the gambit by the Lib Dems — which had the backing of one of Labour’s most senior backbenchers, Meg Hillier — as “Brexit Redux.” And he accused Ed Davey, the Lib Dem leader, of wanting “to go back to the arguments of the past.” The Lib Dems have drawn support from disillusioned Labour voters, partly inspired by the party’s more forthright position on moving closer to the EU. But Thomas-Symonds defended Labour’s manifesto commitment to remain outside the single market and the customs union. “The strategy that I and the government have been pursuing is based on our mandate from the general election of 2024, that we would not go back to freedom of movement, we would not go back to the customs union or the single market,” the British minister for European Union relations said. Thomas-Symonds said this remained a “forward-looking, ruthlessly pragmatic approach” that is “rooted in the challenges that Britain has in the mid 2020s.” He pointed out that post-Brexit Britain outside of the customs union has signed trade deals with India and the United States, demonstrating the “advantages of the negotiating freedoms Britain has outside the EU.” ‘GET ON WITH IT’ Speaking to POLITICO’s Anne McElvoy for the “Politics at Sam and Anne’s” podcast, out on Thursday, Thomas-Symonds was optimistic that a grand “reset” of U.K.-EU relations would progress more quickly in the new year. The two sides are trying to make headway on a host of areas including a youth mobility scheme and easing post-Brexit restrictions on food and drink exports. “I think if you look at the balance of the package and what I’m talking about in terms of the objective on the food and drink agreement, I think you can see a general timetable across this whole package,” he said. Pressed on whether this could happen in the first half of 2026,  the U.K. minister sounded upbeat: “I think the message from both of us to our teams will be to get on with it.”  The Brussels visit comes after talks over Britain’s potential entry into a major EU defense program known as SAFE broke down amid disagreement over how much money the U.K. would pay for access to the loans-for-arms scheme. The program is aimed at re-arming Europe more speedily to face the threat from Russia. Asked if the collapse of those talks showed the U.K. had miscalculated its ability to gain support in a crucial area of re-connection, Thomas-Symonds replied: “We do always impose a very strict value for money. What we would not do is contribute at a level that isn’t in our national interest.” The issued had “not affected the forward momentum in terms of the rest of the negotiation,” he stressed. YOUTH MOBILITY STANDOFF Thomas-Symonds is a close ally of Prime Minister Keir Starmer and has emboldened the under-fire British leader to foreground his pro-Europe credentials. The minister for European relations suggested his own elevation in the British government — he will now attend Cabinet on a permanent basis — was a sign of Starmer’s intent to focus on closer relations with Europe and tap into regret over a post-Brexit loss of business opportunities to the U.K. Fleshing out the details of a “youth mobility” scheme — which would allow young people from the EU and the U.K. to spend time studying, traveling, or working in each other’s countries — has been an insistent demand of EU countries, notably Germany and the Netherlands. Yet progress has foundered over how to prevent the scheme being regarded  as a back-door for immigration to the U.K. — and how exactly any restrictions on numbers might be set and implemented. Speaking to POLITICO, Thomas-Symonds hinted at British impatience to proceed with the program, while stressing: “It has to be capped, time-limited, and  it’ll be a visa-operated scheme. “Those are really important features, but I sometimes think on this you can end up having very dry discussion about the design when actually this is a real opportunity for young Brits and for young Europeans to live, work, study, enjoy other cultures.” The British government is sensitive to the charge that the main beneficiaries of the scheme will be students or better-off youngsters. “I’m actually really excited about this,” Thomas-Symonds said, citing his own working-class background and adding that he would have benefited from a chance to spend time abroad as a young man “And the thing that strikes me as well is making sure this is accessible to people from all different backgrounds,” he said. Details however still appear contentious: The EU’s position remains that the scheme should not be capped but should have a break clause in the event of a surge in numbers. Berlin in particular has been reluctant to accept the Starmer government’s worries that the arrangement might be seen as adding to U.K. immigration figures, arguing that British students who are outside many previous exchange programs would also be net beneficiaries.  Thomas-Symonds did not deny a stand-off, saying: “When there are ongoing talks about particular issues, I very much respect the confidentiality and trust on the ongoing talks.”  Britain’s most senior foreign minister, Yvette Cooper, on Wednesday backed a hard cap on the number of people coming in under a youth mobility scheme. She told POLITICO in a separate interview that such a scheme needs to be “balanced.” “The UK-EU relationship is really important and is being reset, and we’re seeing cooperation around a whole series of different things,” she said. We also, at the same time, need to make sure that issues around migration are always properly managed and controlled.” A U.K. official later clarified that Cooper is keen to see an overall cap on numbers. BOOZY GIFT As negotiations move from the technical to the political level this week, Thomas-Symonds sketched out plans for a fresh Britain-EU summit in Brussels when the time is right. “In terms of the date, I just want to make sure that we have made sufficient progress, to demonstrate that progress in a summit,” Nick Thomas-Symonds said. “I think that the original [post-Brexit] Trade and Cooperation Agreement did not cover services in the way that it should have done,” he added. “We want to move forward on things like mutual recognition of professional qualifications.” Thomas-Symonds, one of the government’s most ardent pro-Europeans, meanwhile told POLITICO he had forged a good relationship with “Maroš” (Šefčovič) – and had even brought him a Christmas present of a bottle of House of Commons whisky. “So there’s no doubt that there is that trajectory of closer U.K.-EU cooperation,” he quipped. Dan Bloom and Esther Webber contributed reporting.

LONDON — Britain’s Treasury unveiled a provisional licensing authorization regime for start-up financial firms, allowing them to start operating before they get full authorization from the Financial Conduct Authority. The move comes as part of the British government’s deregulatory push to try and encourage growth in the U.K.’s sizable financial services and start-up industry. Speaking at POLITICO’s Financial Services forum Thursday, City Minister Lucy Rigby said U.K. start-ups that don’t yet meet the “onerous” conditions for formal authorization under the Financial Services and Markets Act would be “be able to obtain a provisional license.” However, Rigby stressed that firms will still need to meet some qualifications to receive the licenses, stating: “We are maintaining standards which we believe are vital for consumer protection.” “It will enable them to grow, to be able to secure the further investments that we know that they will need to be able to grow,” she added. It’s the latest sign that the British government is aiming to ease the regulatory rulebook in the U.K. in a bid to spur growth. Prime minister Keir Starmer wrote to the Financial Conduct Authority last year ordering them to produce a list of pro-growth initiatives that could be implemented by the regulator. TREASURY DOESN’T WANT TO ‘RUSH’ ON PENSION CHANGES Speaking at the forum just a week after a headline-grabbing and chaotic U.K. budget, Rigby was also grilled on whether the financial services industry will have the chance to press for changes to some of its more unpopular policies. Rigby said “a huge part of [her] role” involves listening to feedback from the financial sector, “because I think that’s how you ultimately get to the best results, and certainly how you get to things that will actually work.” Several policies announced in the budget, such as a cut to salary sacrifice limits for pension savers, are not due to come into effect until 2029, which has left some in the pension sector hopeful that changes can still be made. “It’s critical that there is sufficient time spent working with industry on the detail of exactly how this is going to operate, and we definitely do not want to rush that,” Rigby said. The City minister also addressed Chancellor Rachel Reeves’ decision not to hike taxes on banks at last week’s budget, saying the government wanted “to see the U.K. staying competitive globally and indeed, becoming more competitive.”

The U.K.’s budget watchdog has taken full responsibility for the unprecedented early publication of its budget forecast — but warned that it may happen again if its arrangements don’t change. Last week, the Office for Budget Responsibility’s economic and fiscal outlook — which contained detailed information on what would be in the budget — was accidentally made accessible before Chancellor Rachel Reeves delivered her budget in parliament.  In its investigation into what happened, the OBR said the “pressure on the small team involved” to ensure that the fiscal forecast was published immediately after Reeves finished her speech on Nov. 26 led to the use of a “pre-publication facility” which although is “commonly used” creates a “potential vulnerability if not configured properly.” “The twice-yearly task of publishing a large and sensitive document is out of scale with virtually all of the rest of its publication activities,” said the investigation, which was hastily carried out by peer Sarah Hogg and OBR board member and City bigwig Susan Rice. It called for “completely new arrangements” to be put in place for the publication of market-sensitive documents, and urged the Treasury to pay “greater attention” to the need for adequate support when funding the OBR. The watchdog said that given its small size, it used an outside web developer to upload its contents. It found multiple attempts by outside parties to access the document before it was published, by guessing the URL, and also revealed there was a successful attempt to do so in an earlier major March publication. On Nov. 26, the day of the budget, there were 44 unsuccessful requests to the URL between 5.16 and 11.30 a.m. as the document had not yet been uploaded. Between 11.30 and 11.35 a.m., the web developer began uploading documents to the draft area of the OBR’s website, which the watchdog believed was not publicly accessible. At 11.35 a.m., an IP address which had made 32 previous unsuccessful attempts to gain access to the site accessed it for the first time successfully. Six minutes later, at 11.41 a.m., Reuters sent a news alert reporting the government would raise taxes by £26.1 billion by 2029-2030. The URL was then widely accessed by journalists, markets and other parties between 11.30 a.m. and 12.08 p.m., after which it was removed by the OBR. The report also reveals that one IP address successfully accessed the March version of the fiscal outlook, when Reeves delivered her spring statement. The log shows the document being accessed at 12.38 p.m., five minutes after Reeves started speaking and nearly 30 minutes before publication. “It is not known what, if any, action was taken as a result of this access and there is no evidence at this stage of any nefarious activity arising from it,” the report says. The report doesn’t review how financial markets were influenced by the early publication, but says the OBR will cooperate with the Financial Conduct Authority. The investigation described the mistake as the “worst failure” in the 15-year history of the OBR, but said that it was not a case of intentional leakage, or “pressing the publication key too early.”  OBR chief Richard Hughes is due to appear before MPs Dec. 2 where he will be fighting for his future. Speaking to Sky News on Sunday, the chancellor repeatedly declined to say whether Hughes was safe in his job.  Earlier today, Keir Starmer said that while he was “very supportive” of the OBR, the breach of market-sensitive information was a “massive discourtesy” to parliament. 

LONDON — British MP Tulip Siddiq has been handed a two-year prison sentence in Bangladesh in her absence following a corruption trial she did not attend. Siddiq, a former U.K. minister, was found guilty of influencing her aunt, Bangladesh’s ex-Prime Minister Sheikh Hasina, to secure a plot of land for her family in the outskirts of the capital Dhaka, according to a BBC report of the trial. Siddiq, a former U.K. Treasury minister, has strongly denied the claims and is unlikely to serve the sentence. She is based in London and is the MP for the London constituency of Hampstead and Highgate. The case is one of a number launched by prosecutors against Hasina and her family in Bangladesh. Hasina fled the country last year after more than a decade in charge. The ex-PM was sentenced to death in a separate trial a fortnight ago. Siddiq quit as a  Treasury minister in January following multiple media reports — heavily disputed by Siddiq — that she benefited from her family’s rule of Bangladesh. She said she did not want to be a “distraction” for the government. In a statement at the start of the trial, Siddiq said prosecutors had “peddled false and vexatious allegations that have been briefed to the media but never formally put to me by investigators,” and insisted she had “done nothing wrong.” “Continuing to smear my name to score political points is both baseless and damaging,” she added. A group of senior lawyers, including Britain’s ex-Justice secretary Robert Buckland, former Attorney General Dominic Grieve, and Cherie Blair, a human rights lawyer and wife of former prime minister Tony Blair, last week said the trial had been “contrived and unfair.” The U.K. does not have an extradition treaty in place with Bangladesh. In a fresh statement Monday morning, Siddiq slammed what she called a “flawed and farcical” legal process. “The outcome of this kangaroo court is as predictable as it is unjustified,” she said. “I hope this so called ‘verdict’ will be treated with the contempt it deserves. My focus has always been my constituents in Hampstead and Highgate and I refuse to be distracted by the dirty politics of Bangladesh.”

LONDON — For a nation addicted to political chaos, it wasn’t a bad metaphor. A stream of measures from Rachel Reeves’ budget leaked an hour before Britain’s finance minister delivered them Wednesday, when the independent fiscal watchdog accidentally published its market-moving 203-page analysis online. Britain’s problems, though, run far deeper than one spectacular budget leak. Keir Starmer was elected last year on a 10-year plan to change the country, and a vow to end “sticking-plaster politics.” But U.K. politics remains far stickier than the prime minister feared. Faced with a productivity downgrade and a need to calm the markets, his chancellor ditched her overzealous promises of last year — that Labour would not raise taxes on “working people,” come back “with more tax increases” or extend a freeze on income tax thresholds beyond 2028. Instead Reeves did all three, unveiling £26 billion of tax rises (on top of £40 billion last year) to balance the books and “beat the forecasts” of stagnation. As a result, Britain’s tax take will reach an all-time high of 38.3 percent of GDP in 2030-31. This time, Reeves insisted, it’s for real. Her mission is to finally end Britain’s economic doom loop — to stop the country living year-to-year, hand-to-mouth.  In some ways she made progress, more than doubling her fiscal margin for error to £21.7 billion. The Office for Budget Responsibility (OBR) watchdog ruled that she was more likely to meet her “fiscal rules” by 2030 than any chancellor since the Covid-19 pandemic.  Yet her position is still immensely fragile. The OBR said her margin remains relatively small and Britain’s public finances are “relatively vulnerable to future shocks” that would leave her coming back for more pain in future years. Reeves pointedly refused to rule out further tax hikes before 2029. And that’s if Reeves remains in the job at all. Facing dire polls, the Labour MPs who cheered her on Wednesday are chattering privately about whether to unseat Starmer next year. If they do, Britain will be onto its sixth prime minister since 2019. ‘THE GRAVITATIONAL PULL OF SHORT-TERMISM’ In short, “nothing in British economic policymaking survives the gravitational pull of short-termism,” said Cameron Brown, a former adviser to Conservative chancellors including Kwasi Kwarteng (whose “mini-budget” led to a market backlash so severe it forced Kwarteng and Prime Minister Liz Truss from office). Brown argued: “Reeves came in promising stability and long-term planning, but this fiscal event shows how quickly the system drags even the most disciplined chancellor back into the year-to-year cycle. “From my time in the Treasury, the pattern is familiar. We would spend months crafting multi-year strategies, only for the final decisions to be dictated by the latest OBR run, the next inflation stats or the politics of the Commons that week. The faces have swapped, but the architecture is the same.” This manifests itself in a few ways. Firstly, many of Reeves’ tax rises and spending cuts are backloaded in a way that will delay the pain until around or beyond the next U.K. general election, currently scheduled for 2029. Wednesday’s tax rises would net the Treasury £10.7 billion the year before the election, but £23.1 billion and £26.6 billion in the two years after it. Reeves, on a visit to an NHS hospital that will receive new funding, told POLITICO this was exactly the long-termism she wants. “When you’re making tax reform, it’s often not possible to change those rates overnight,” she said. Government officials insist the changes will be legislated for soon and start before 2029, so are locked in.  Yet that’s all very well until another chancellor unlocks them. Reeves declined to answer whether she believes she will still be in her job by the end of the decade. These sorts of accounting tactics are, of course, common in all budgets. Reeves did promise a big change of tack — to end Britain’s 15-year freeze on fuel duty from fall 2026 — but even then she still managed to extend it by another six months. THE BOND MARKETS RULE EVERYTHING Secondly, Britain’s finances remain at the mercy of small fluctuations to the bond markets.  A sharp rise in interest rates in recent years, along with smaller domestic demand for government debt, means U.K. debt costs more to serve than any other G7 country. Desperate to convey this disparity to the public, one young Labour MP, Gordon McKee, created a viral video explaining it using a stack of custard creams (a popular British biscuit).  Reeves’ higher fiscal buffer left the bond markets happy Wednesday. Internally, government officials shared images of a Bloomberg TV ticker that said: “U.K. markets rally, bond yields fall: U.K. traders welcome borrowing restraint.” Yet the OBR said debt will still rise from 95 to 96.1 percent of GDP by the end of the decade, twice the level of the average advanced economy. Even if the government meets its own fiscal rules, more will still be paid on debt interest than at almost any time in Britain’s post-war history. The markets’ dominance led to a stream of pre-budget leaks and briefings, many of which were designed to calm traders. One MP even said they weren’t worried about how their colleagues react — only the bond markets. LABOUR MPS WAIT IN THE WINGS But (and thirdly), Reeves’ colleagues matter too. The biggest cheer by far from Labour MPs during her speech was for the removal of the “two-child limit,” a Conservative policy that blocks benefit payments for third children in a family. MPs had failed to remove it last year, but months of internal pressure finally paid off. More widely, the budget was plainly progressive — even if, as Reeves admitted, it will have a cost for many of the “working people” she once promised to protect. The chancellor juxtaposed tax hikes on £2 million homes, pension contributions and savings pots juxtaposed against a higher minimum wage and help for energy bills. She pointed to distributional analysis that showed it will help the poorest tenth of Brits the most and the richest tenth the least. Yet her MPs’ immediate shout of “more!” showed the pressure will not stop there. Some have bigger ideas. Many have long complained about the dominance of OBR forecasts, and one Labour MP — just before the leak — complained that “putting the OBR on a pedestal” makes the problems of short-termism even worse.  Others wonder about having a big bang budget at all, given it leads to months of speculation, market fluctuations and leaks. One veteran MP wondered aloud on Wednesday night: “Isn’t there another way we can do it in 21st century Britain?” Then, finally, there is the question of what sort of chancellor Reeves will be; tax-raising, redistributive and pouring funding into public services, or slashing regulation in the name of growth. She insists she can be both, but her critics — especially among conservatives — believe she has gravitated to the former. While Britain’s growth projection was revised up to 1.5 percent in 2025, it was revised down for every future year. Inflation is now projected to fall to the Bank of England’s 2 percent target only in 2027, a year later than previously thought. And while real spending on government departments will continue to rise, the increase slows down from 4 percent in 2025/26 to 0.7 percent by the end of the decade. “Britain remains in a bind,” Ruth Curtice, chief executive of the Resolution Foundation, an economic think tank, told POLITICO. “On the one hand, the political system continues not to have a serious conversation about how to pay for an aging and ailing population. On the other, both parties have now significantly raised personal taxes.” Adrian Pabst, deputy director of the National Institute of Economic and Social Research, a nonpartisan research institute, added: “While [Reeves] has built a larger fiscal buffer against shocks, it’s not clear how her budget will raise economic growth based on higher business investment. “Higher tax, higher spend, no significant reduction in the ballooning welfare bill and no path of people who are inactive into work. There is as yet no clear bold plan to get the UK economy firing on all cylinders.” Reeves perhaps put it best herself, surrounded by nurses in a small room in London’s University College Hospital. “If you are asking, is this a budget I wanted to deliver today? I would have rather the circumstances were different,” she told journalists. “But as chancellor, I don’t get to choose my inheritance, and I have to live in the world as it is.”

LONDON — The wait is finally over. After weeks of briefings, speculation, and U-turns, Chancellor Rachel Reeves has set out her final tax and spending plans for the year ahead. As expected, there is plenty for policy wonks to chew over. To make your lives easier, we’ve digested the headline budget announcements on energy, financial services, tech, and trade, and dug deep into the documents for things you might have missed.  ENERGY  The government really wants to bring down bills: Rachel Reeves promised it would be a cost-of-living budget, and surprised no one with a big pledge on families’ sky-high energy bills. She unveiled reforms which, the Treasury claims, will cut bills by £150 a year — by scrapping one green scheme currently paid for through bills (the Energy Company Obligation) and moving most of another into general taxation (the Renewables Obligation). The problem is, the changes will kick in next year at the same time bills are set to rise anyway. So will voters actually notice? The North Sea hasn’t escaped its taxes: Fossil fuel lobbyists were desperate to see a cut in the so-called Windfall Tax, which, oil and gas firms say, limits investment and jobs in the North Sea. But Rachel Reeves ultimately decided to keep the tax in place until 2030 (even if North Sea firms did get a sop through rules announced today, which will allow them to explore for new oil and gas in areas linked to existing, licensed sites.) Fossil fuel lobbyists, Offshore Energies UK, were very unimpressed. “The government was warned of the dangers of inaction. They must now own the consequences and reconsider,” it said. FINANCIAL SERVICES Pension tax changes won’t arrive for some time: The widely expected cut in tax breaks for pension salary sacrifice is set to go ahead, but it will be implemented far later than thought. The thresholds for exemption from national insurance taxes on salary sacrifice contributions will be lowered from £60,000 to £2,000 in April 2029, likely to improve forecasts for deficit cuts in the later years of the OBR’s forecasts. The OBR has a markets warning: The U.K.’s fiscal watchdog warned that the price-to-earnings ratio among U.S. equities is reminiscent of the dotcom bubble and post-pandemic rally in 2021, which were both followed by significant market crashes. The OBR estimated a global stock market collapse could cause a £121 billion hike in U.K. government debt by 2030 and slash U.K. growth by 0.6 percent in 2027-28. Even if the U.K. managed to stay isolated from the equity collapse, the OBR reckons the government would still incur £61 billion in Public Sector Net Financial Liabilities. Banks back British investments: British banks and investment houses have signed an agreement with the Treasury to create “invest in Britain” hubs to boost retail investment in U.K. stocks, a plan revealed by POLITICO last week. Reeves also finally tabled a cut to the tax-free cash ISA allowance: £12,000 from spring 2027 (the amount and timings also revealed by POLITICO last week), down from £20,000, with £8,000 slated for investments only. Over-65s will keep the full tax-free subscription amount. Also hidden in the documents was an upcoming consultation to replace the lifetime ISA with a “new, simpler ISA product to support first-time buyers to buy a home.” No bank tax: Banks managed to dodge a hike in their taxes this time, despite calls from the IPPR for a windfall-style tax that could have raised £8 billion. The suggestions (which also came from inside the Labour Party) were met with an intense lobbying effort from the banks, both publicly and privately. By the eve of the budget, City figures told POLITICO they were confident taxes wouldn’t be raised, citing the high rate of tax they already pay and Reeves’ commitment to pushing for growth through the financial services industry. TECH ‘Start, scale, stay’ is the new mantra:  Startup founders and investors were in panic mode ahead of the budget over rumored plans for an “exit tax” on wealthy individuals moving abroad, but instead were handed several wins on Wednesday, with Reeves saying her aim was to “make Britain the best place in the world to start up, to scale up and to stay.” She announced an increase in limits for the Enterprise Manage Scheme, which incentivizes granting employees share options, and an increase to Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) thresholds to facilitate investment in growing startups. A further call for evidence will also consider “how our tax system can better back entrepreneurs,” Reeves announced. The government will also consider banning non-compete clauses — another long-standing request from startups. Big Tech will still have to cough up: A long-standing commitment to review a Digital Services Tax on tech giants was quietly published alongside the budget, confirming it will remain in place despite pressure from the Trump administration. The government will ‘Buy British’ on AI: Most of the government’s AI announcements came ahead of the budget — including plans for two new “AI Growth Zones” in Wales, an expansion of publicly owned compute infrastructure — meaning the only new announcements on the day were a relatively minor “digital adoption package” and a commitment to overhaul procurement processes to benefit innovative tech firms. But the real point of interest on AI came in the OBR’s productivity forecasts, which said that despite the furor over AI, the technology’s impacts on productivity would be smaller than previous waves of technology, providing just a 0.2 percentage point boost by 2030. The government insists digital ID will ultimately lead to cost savings. | Andrea Domeniconi/Getty Images OBR delivers a blow to digital ID: The OBR threw up another curveball, estimating the cost of the government’s digital ID scheme at a whopping £1.8 billion over the next three years and calling out the government for making “no explicit provision” for the expense. The government insists digital ID will ultimately lead to cost savings — but “no specific savings have yet been identified,” the OBR added. TRADE  Shein and Temu face new fees: In a move targeted at online retailers like Shein and Temu, the government launched a consultation on scrapping the de minimis customs loophole, which exempts shipments worth less than £135 from import duties. These changes will take effect from March 2029 “at the latest,” according to a consultation document. Businesses are being consulted on how the tariff should be applied, what data to collect, whether to apply an additional administration fee, as well as potential changes to VAT collection. Reeves said the plans would “support a level-playing field in retail” by stopping online firms from “undercutting our High Street businesses.”  Northern Irish traders get extra support: Also confirmed in the budget is £16.6 million over three years to create a “one-stop shop” support service to help firms in Northern Ireland navigate post-Brexit trading rules. The government said the funding would “unlock opportunities” for trading across the U.K. internal market and encourage Northern Ireland to take advantage of access to EU markets.  There’s a big question mark over drug spending: Conspicuously absent was any mention of NHS drug spending, despite U.K. proposals to raise the cost-effectiveness threshold for new drugs by 25 percent as part of trade negotiations with the U.S., suggesting a deal has not yet been finalized. The lack of funding was noted as a potential risk to health spending in the Office for Budget Responsibility’s Economic and Fiscal Outlook, which was leaked ahead of the budget. 

LONDON — Financial markets gave a cautious welcome to Chancellor Rachel Reeves’ budget — to the extent that they could make sense of it. The presentation of the U.K. government’s fiscal plans for the next year was badly disrupted when the Office for Budget Responsibility accidentally published its analysis of the bill before Reeves had even announced it in parliament. That forced investors into a frantic search for its key details. As the initial uncertainties lifted, the pound rose by 0.2 percent against the dollar and a little more against the euro, on the key takeaway that the annual tax take will rise by £26 billion by the 2029-2030 fiscal year. That will squeeze the budget deficit and give Reeves more room for maneuver in the event of a fresh downturn. “The Chancellor more than doubled her fiscal headroom from around £10 billion to just under £22 billion,” Deutsche Bank analyst Sanjay Raja said in a note to clients. Such considerations should reduce the U.K.’s vulnerability to swings in global financial markets, which has been exposed more than once in a year when U.S. President Donald Trump has upended the global trading order. Investors had worried all year that a global economic slowdown could push Britain in the direction of a debt crisis. But Reeves now estimates the budget deficit will fall to 1.9 percent of GDP by 2030, from 4.5 percent of GDP in the current year. That will stabilize the debt ratio well below 100 percent of GDP, but at a cost. By freezing income tax thresholds for the rest of this parliament, and by a host of smaller measures, Reeves will raise the overall tax take to a record 38 percent of gross domestic product, according to the OBR. The new debt trajectory generated a measure of relief in bond markets, visible in a drop of 0.05 percentage points in the government’s key 10-year borrowing cost to 4.44 percent by 2 p.m. in London. That was the lowest since the leak of Reeves abandoning her planned increase in income tax rates two weeks ago. It also fed through into slightly stronger expectations of interest rate cuts from the Bank of England. The two-year gilt yield, which closely tracks expectations of the Bank Rate, fell 0.03 percentage points to a 15-month low of 3.74 percent. Reeves was careful to avoid the mistakes of her last budget which, by raising regulated prices sharply, drove headline inflation back to 4 percent over the summer. In her statement on Tuesday, she went in the other direction, freezing rail and bus fares and removing some of the government-directed charges on energy bills. The OBR said these measures would take 0.4 percent off the rate of inflation over the next year. “I have cut the cost of living with money off bills and prices frozen,” Reeves said. Deutsche’s Raja said the measures would have a “modest but meaningful” impact on inflation, making the Bank’s job “slightly easier” for the next 12 months. The Bank of England held off from cutting the key Bank Rate at its latest Monetary Policy Committee meeting this month, despite increasingly signs of the job market weakening. Most analysts had said at the time they would expect a cut in December, as long as the budget didn’t add to inflationary pressures.

When Goldman Sachs boss David Solomon met with Chancellor Rachel Reeves in October, he was given a list of prepared talking points by colleagues to discuss with Britain’s top finance minister. With only one thing on his mind, he ripped up the notes and warned her: Don’t hike bank taxes in the budget. Six weeks on, after Reeves delivered her second fiscal statement on Nov. 26 with no such tax increases, he needn’t have worried too much. Taxing Britain’s mammoth lenders could have raised £8 billion for the exchequer, a huge amount which would have gone a long way to plug the £30 billion hole Reeves needed to fill to stabilize the U.K.’s finances. But while some in the ruling Labour Party would have loved to see financial institutions taxed more, Reeves was never actually going to pull the trigger. Publicly and privately, the lobbying efforts by banks were intense. The CEOs of Lloyds, HSBC, and NatWest all spoke out openly against the suggestion, while other leaders, such as Solomon, issued their warnings behind closed doors. Banks couldn’t rule out a tax hike, particularly after a leaked memo revealed that former Deputy Prime Minister Angela Rayner had urged Reeves to raise the bank surcharge, an extra tax paid by banks on top of corporation tax. Certain think tanks, too, called on Reeves to go big on fat cats. But behind closed doors, as the budget approached, City figures weren’t so concerned. Many cautioned against believing stories that a bank tax was imminent, while others said they simply hadn’t been told either way — therefore weren’t expecting a surprise in the budget. Ultimately, they believed their lobbying was hugely successful toward a government intent on achieving growth and fearful of sending wealth out of the country. One senior bank executive, granted anonymity to speak freely, said bank chiefs “care about two things: How easy is it to hire and fire people in the U.K, and how much tax do we pay in this country?” For banks, their winning arguments were twofold: One, lenders pay £43.3 billion in tax every year at a 46.4 percent tax rate, higher than any other global financial center, according to data from lobby group UK Finance. Two, Reeves has been on a mission of financial deregulation since her party entered No. 10 last year. Banks argued that giving with one hand, by loosening rules, but taking away with the other, by hiking taxes, was contradictory and wouldn’t achieve the growth she so desperately wants. “Reeves has been consistent with her messaging during her tenure,” said Benjamin Toms, bank analyst at RBC Capital Markets. “The government wants to stimulate growth, and Reeves realizes that U.K. banks are the conduit for that growth.” MOVING MARKETS The message appeared to get through to Reeves, even though she declined to publicly rule out hiking bank taxes. That left rumors to intensify over the summer. Two think tanks, Positive Money and IPPR, issued reports backing a tax hike, with both recommending a windfall-style levy on bank profits. The former delivered a petition with 68,749 signatures calling for the move to the chancellor earlier this week. The IPPR report, published at the end of August, was the most impactful, knocking £8 billion off the share prices of FTSE 100 banks the day it was published, with NatWest losing £2.5 billion alone in market cap. The Treasury worked hard to separate itself from the report, with a spokesperson saying afterward that “the chancellor has been clear that the financial services sector is at the heart of our plans to grow the economy,” but it wasn’t enough to quell rumors. “Ultimately, negative press around banks slamming a bank tax and its effect on growth is considered more damaging to the economy than the taxes collected from the banks would bring in,” said Niklas Kammer, equity analyst at Morningstar. Later, it emerged that Reeves “ripped into” members of the think tank after the report was published, per one person in the room at the time. She told the IPPR to think before they publish a report next time, in front of dozens of attendees at a meeting in No. 11 Downing Street in September. While it seemed that gossip around a surcharge hike quietened down after the summer, it was immediately thrust back into the spotlight after the chancellor’s decision to rule out any income tax hikes in the budget, as Reeves began searching around for sources of income to pad her fiscal headroom. Lobbying efforts intensified after the news on income tax broke, causing banks to panic that the move would be back on the table and warn that they’d move business elsewhere. “We suggested in our conversation with government that if the surcharge was to go up, we might be able to move things to the EU,” added the bank executive. After Brexit, banks have been forced to move more of their operations to the continent, buying new offices and hiring further staff, leaving greater possibilities to shift operations away from the U.K. “It’s much easier to move at the margins now than it would have been just five years ago,” they said. But the possibility of raising taxes on banks in Britain was officially ruled out after reports circulated in the days leading up to the budget that Reeves would let them off the hook — if they praise the chancellor’s decisions. Will Howlett, financials analyst at Quilter Cheviot, said it would be a “stretch” to see banks showering the budget with praise given the other tax rises that Reeves did pursue in the fiscal event, along with the cuts to cash ISA limits. But Toms said it was likely “more accurate” that the government was requesting banks not criticize the budget rather than actively praise it. For banks reeling from a huge win, staying quiet won’t be too hard.