Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Parents who employ nannies could see their annual childcare bills jump by more than £1,000 from April under measures announced in this week’s Budget.The chancellor’s key tax-raising policy will see employers’ national insurance contributions increase from 13.5 per cent to 15 per cent next year, with the salary threshold at which employers pay contributions dropping from £9,100 to just £5,000.While this move was aimed at businesses, parents who employ nannies for their childcare arrangements will also be impacted.Jenni Bond, managing director of Nannytax, a payroll service for parents, said the extra NI charges would add more than £1,000 to the annual cost of hiring a nanny, based on the average salary of £46,228 for nannies in London.The additional costs could be higher still, said Bond, if the number of hours the nanny was working placed their hourly income below the level of April’s new national minimum wage.Although the chancellor extended protection to small businesses by boosting the employment allowance to enable them to offset higher payroll costs, employers of domestic staff including nannies, cleaners and gardeners are exempt from using it. The rules exclude workers who are being employed in a personal capacity to support the running of a household. “The cost of childcare is astronomical, and domestic employers should absolutely be included [in the employment allowance],” said Bond.Joeli Brearley, founder of the charity Pregnant Then Screwed which campaigns for more affordable childcare, said the NI increase would “hit working parents hard, particularly mothers, who still bear the brunt of childcare costs”. “For many, employing a nanny isn’t a luxury but a necessity to keep their careers going. With this added expense, we risk pushing more parents — especially single parents and mothers — out of the workforce.”Bond said that increases in the minimum wage, announced on Tuesday, would also pile “on top of those increases parents would have expected”. The national living wage for over-21s will rise from £11.44 to £12.21 in April 2025.199The number of children’s nurseries forced to close in the year to September 2024, according to the National Day Nurseries AssociationThe NI hit to parents with nannies comes as parents grapple with the costs of childcare after a surge in nursery closures and a push for workers to return to the office after the pandemic. The yearly salary for nannies outside London rose by 12 per cent year-on-year to £40,326 in 2023-24, according to Nannytax’s annual salary index report. In London, annual salaries for nannies rose by 8 per cent to £46,228.In the year to September 2024, 199 nurseries were forced to close, according to the National Day Nurseries Association, a charity representing nurseries across the UK.“A lot of this comes down to chronic underfunding, particularly for three and four-year-olds,” said Purnima Tanuku, chief executive of NDNA, in September.The Treasury declined to comment. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The auto industry supports 6 per cent of the EU’s jobs, and Volkswagen is its biggest carmaker. So when the German group warns it must close three plants at home and axe thousands of workers, that is a sign of the stress Europe’s carmakers are under. European sales have yet to regain pre-pandemic levels, just when the industry is engaged in an epochal shift from internal combustion engines to electric vehicles — and has allowed Chinese rivals to leapfrog ahead in the new technology. Slow off the starting line, Europe’s carmakers face a restructuring as wrenching as the US auto industry after the 2008 financial crisis. But policy needs to play a more constructive role, too.Despite two profit warnings in three months, Volkswagen is not in such desperate straits as the biggest US carmakers 15 years ago. It says it needs to raise operating margins in the core VW brand from 2 per cent in recent quarters to 6.5 per cent by 2026 to fund investments in its future. Targeting three plant closures may be its opening gambit in talks with Lower Saxony, which has 20 per cent of voting rights, and the unions. But VW and Germany are not alone in having to slash overcapacity and costs. Italian politicians are pushing Stellantis, which owns Fiat, Peugeot and Opel, to keep open its Fiat plant in Turin despite falling sales. Some French assembly lines are already being shifted offshore.Germany’s big carmakers, in particular, were too complacent in assuming that the lucrative Chinese market could tide them over the tricky EV transition. Chinese manufacturers have stolen a march technologically and are supplanting foreign rivals in a market where, in July, half of all vehicles sold were EVs or plug-in hybrids. China’s upstarts benefited from huge state subsidies and lower labour costs, and started from a cleaner slate. They grasped more quickly, though, that EVs’ value lies more in snazzy software and electronics than in mechanics. In Europe, the cheapest new EV last year cost almost double the cheapest ICE car; in China, it cost 8 per cent less. China’s EVs are not only more affordable than foreign ones, they are often better.Fearing a flood of subsidised imports, the EU this week imposed higher tariffs on Chinese-made EVs. But protectionism is not the answer. Europe’s auto industry has to face up to the need to cut costs by reducing capacity and jobs. With fewer moving parts, EVs were always going to need fewer people to build them. Though there will be social costs that must be mitigated, governments need to accept that keeping surplus or lossmaking plants open will only delay or derail a successful transition to new technology. As well as making EVs more cheaply, Europe’s carmakers have to speed up model development, and find partners or outsource areas where they lack expertise. Tie-ups with Chinese counterparts they can learn from make some sense — though China’s newcomers might also use these to plug gaps in their own prowess, and gain access to ready-made distribution networks.Smarter policy must also play a role. The EU has banned the sale of new ICE cars from 2035, and its tightening emissions standards will force automakers to sell fewer of them over time. But as Mario Draghi’s report on competitiveness noted last month, the EU decreed targets without a proper industrial strategy to achieve them. It needs a comprehensive approach to developing the entire supply chain, including raw materials and the battery technology that lies at the heart of EVs, and of China’s EV success. Investment in charging networks and financial incentives are needed to encourage consumers to switch, so higher volumes start to cut production costs. It is not yet too late for Europe’s auto industry to narrow the EV gap. But China has opened a substantial lead. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.For an hour on Wednesday, the financial market reaction to Rachel Reeves’ Budget was ugly — Truss-like, even. Between 2pm when the chancellor finished her speech and 3pm, UK government borrowing costs rose 0.2 percentage points, whether it was seeking to borrow short or long term. This was a much higher increase in yields than in equivalent government bond markets on both sides of the Atlantic and nerves must be jangling in the Treasury. Things were not much better on Thursday. If financial markets blow a loud raspberry to a Budget for a second time in just over two years, that would be a significant blow both to households and the Treasury. There are, however, important differences with Liz Truss’s “mini” Budget debacle. First, the UK market has been calm. Second, rising borrowing costs were not initially combined with falling sterling. In comparison to 2022, foreigners have not been dumping UK assets.Market reaction appeared to follow the Office for Budget Responsibility’s new forecasts which show that higher public spending would add to demand and inflation, while increased taxes would hit supply. This all sounds pretty inflationary and the fiscal watchdog said that while it still thought the Bank of England’s policy rate would fall, the Budget measures would leave interest rates 0.25 percentage points higher than it had assumed when initially producing the forecast. More spending, more borrowing and higher taxes equals higher interest rates than otherwise. This was reasonable analysis from the OBR, which was making a comparison based solely on the outlook now compared with that in March. But it makes little sense for the BoE to follow suit. The central bank has had ample time to adjust its thinking to Reeves’ announcement on July 29 that public spending would be much higher than the OBR assumed in March. Alongside public finance data that has also pointed to a large spending overshoot, the Budget cannot be much of a surprise. The key question for the BoE’s Monetary Policy Committee is what was genuine news. This is pretty limited. The increase in public borrowing for 2024-25 caused directly by policy decisions was £23.7bn, just a little higher than the chancellor’s announcement of a £22bn black hole in July. Whatever you think of the veracity of Reeves’ number, in their meetings in August and September MPC members had known this fiscal stimulus was coming. They did not then think it significant for interest rates. If the BoE says next week that their November meeting was the first time they have considered the effects of Labour’s fiscal plans and these are more inflationary, it would reflect very poorly on its ability to respond to events. For that reason, I think it highly unlikely. It is also worth noting that the BoE is traditionally loathe to suggest it is responding to loose fiscal policy with higher interest rates. When the former chancellor Jeremy Hunt cut national insurance in late 2023 and early 2024, its reaction was a large shrug. Based on information we have had for some time, UK fiscal policy is loosening a little this year, but is on a medium-term tightening path, inflation threats have declined significantly and wage pressures have been moderating. These remain the conditions for the BoE to lower official interest rates with the pace determined by many larger uncertainties than UK fiscal policy. Having suffered a longer-lasting inflationary shock than other European countries, especially in services, the central bank needs to maintain restrictive monetary policy. But it can do so while cutting rates gradually.The Budget is unlikely to change this reality much. The tax rises were big. The spending increases were bigger. But the broad macroeconomic balance did not alter much on Wednesday. [email protected]: Sketchy Politics: Labour pains More