Starmer Warns: Farage Could Unsettle Markets, Spark Second Truss Era

Zia Yusuf, chair of Reform UK, delivered a clear economic policy message against the backdrop of the City of London from the 34th floor of the Shard. His intention was to demonstrate that his party is serious about business.

During a morning press briefing over a traditional English breakfast attended by national journalists, Yusuf echoed a statement made by Reform leader Nigel Farage from a hotel in Las Vegas, 5,000 miles away. Farage announced that the party would accept donations in bitcoin and, if elected, would introduce tax and regulatory reforms to promote the adoption of cryptocurrency in Britain.

The setting for the press conference was impressive, featuring panoramic views of St Paul’s Cathedral and the financial institutions of the Square Mile. This choice was consistent with traditional Westminster strategies, even if the policy resembled something from Donald Trump’s playbook.

Yet, the aspect of Yusuf’s announcement that concerned financial leaders wasn’t the reliability of cryptocurrencies, which the Bank of England views as the finance sector’s “wild west,” but rather the party’s wider fiscal policies.

With Reform UK gaining traction in polls, scrutiny of its economic plans is intensifying. This week, Keir Starmer criticized Farage’s fiscal strategies, likening them to the “fantasy economics” that disastrously impacted Liz Truss’s tenure.

Labour’s critique suggests that Yusuf and Farage’s plans for large, unfunded tax reductions would destabilize the City and could trigger a crisis similar to the one sparked by the former prime minister’s mini-budget. Despite Reform’s assertive display from the Shard, many economists believe there might be merit to Starmer’s concerns.

Reform has announced tax reductions estimated to cost at least £60bn, primarily through raising the income tax personal allowance to £20,000 from £12,570, and increasing the threshold for the 40% higher rate of income tax in England from £50,271 to £70,000.

Amid debates about the feasibility of Reform’s financial calculations, the party’s finance spokesperson, Richard Tice, has pointed out that most politicians are unfamiliar with the Laffer curve. Named after economist Arthur Laffer, this concept suggests there are optimal tax rates that maximize government revenue.

While the theory that tax cuts can boost economic activity and thus increase revenue is enticing, it has faced criticism. Greg Mankiw, former chair of the Council of Economic Advisers under George W. Bush, has labeled advocates of this theory as “charlatans and cranks.” Tice acknowledges an “optimum point” exists, and Yusuf stated that in government, Reform would sequence tax cuts correctly to ensure fiscal balance. However, economists warn that Labour’s proposed tax increases could also impede economic growth.

Nevertheless, concerns persist that Reform’s promises of substantial tax reductions lack sufficient countermeasures to prevent broadening the already significant budget deficit and national debt of over £2.7tn.

Given Britain’s sluggish economic growth, above-target inflation, high national debt, and global increases in borrowing costs due to concerns about Donald Trump’s trade policies, the room for additional borrowing is arguably limited.

Following Farage’s recent welfare commitments, the Institute for Fiscal Studies indicated that Reform’s fiscal policies would cost the treasury between £60bn and £80bn annually in lost revenue and additional expenditures. The IFS highlighted the absence of corresponding spending cuts or tax increases necessary to implement these plans.

Yusuf described Reform’s proposals as evolving and subject to change as the party develops its 2029 manifesto. He cautioned against assuming that policies from the 2024 document would automatically carry over to the next general election’s platform.

This might be a reasonable point, given the time until the next election and potential economic changes. However, voters might expect more from a potential government, particularly one that capitalizes on public dissatisfaction with politicians who frequently shift their positions.

Yet, Yusuf maintained that significant savings could be realistically achieved by eliminating net zero commitments, cutting foreign aid completely, reducing spending on quasi-autonomous non-governmental organizations by 5% annually, and stopping all funding for asylum seeker accommodation.

“The figures I just mentioned total approximately 78 billion pounds, right? And that would amount to £350bn-£400bn over the course of Nigel’s first term,” he explained.

However, analysts at the Institute for Government have expressed skepticism about whether these savings are feasible, noting that much of the £45bn in net zero savings touted by Reform represents private sector, not governmental, spending.

When Truss introduced her mini-budget, she provided a detailed Treasury document spanning over 40 pages to justify her tax plans—yet still, this did little to reassure City investors.

For Reform, there remains a risk that history could repeat itself.