Was it all just a cunning plan?
That, at least, was what some folks in the market found themselves wondering last week when government officials briefed newspapers that all of a sudden the government wasn’t going to raise income tax after all.
On the face of it, it looked like yet another shambles in Downing Street, but there was another, intriguing interpretation: that they had actually pulled off something rather extraordinary.
To see why, we need to start a few weeks ago, when the government began energetically briefing that it was considering raising taxes in the forthcoming budget.
This all culminated with that slightly odd press conference at Downing Street, where the chancellor seemed to hint that she was even prepared to abandon the manifesto pledge not to raise income tax.
Here’s what happened in that period: the yields on UK government bonds fell. In fact, they fell quite a lot, down from around 4.7% to 4.4%.
Now, appending changes in gilt yields to a single factor is a mug’s game – after all, they also reflect things like central bank decisions, not to mention the health of the wider economy.
All the same, it’s pretty clear these yields – which feed into the debt interest costs faced by the government, and by extension all of us – are at least somewhat moving as a result of all these government hints and leaks.
We know as much because last Friday, after yet another anonymous government official leaked to a few newspapers that it was no longer planning to raise income tax, the UK 10 year bond yield leapt up sharply.
UK 10 Year…
