• Paralysis, political frailty dog PM Keir Starmer
• ‘Tax tapas’ risks denting domestic dealmaking
• Public markets M&A may climb if sterling tanks

Let’s consider the Duke of York. No, not the disgraced, sweatless Andrew Mountbatten-Windsor.

Instead, we turn to Prince Frederick, Duke of York and Albany, whose military indecision regarding troop deployment during the Napoleonic Wars was immortalised in a nursery rhyme – the key refrain of which: “he marched them up to the top of the hill and he marched them down again”.

In preparing her UK Budget, Chancellor Rachel Reeves seems to have taken this less as a cautionary tale of vacillation leading to ridicule and more as a playbook for setting fiscal policy.

Having trailed manifesto-busting – but reliable – income tax rises for weeks, it emerged late last week that Reeves will in fact opt for a confusing buffet of complicated revenue raising measures totalling more than GBP 20bn when she delivers her Budget on 26 November.

This had an immediately negative impact on UK public debt, with gilts enduring a torrid Friday. Such lurches in policy have a dire impact on business sentiment and create obvious risks for domestic tie-ups, though sterling weakness could drive listed company takeovers next year.

The scale of incompetence on show is breathtaking.

When projections ahead of this year’s fiscal event pointed to a GBP 30bn-plus black hole, Reeves appeared to show the bravery that had thus far eluded her and looked set to take back control of the economic narrative. On 4 November, she delivered an unprecedented “scene-setting” speech that, alongside heavy Treasury briefing to lobby journalists, rolled the pitch for income tax hikes directly breaching manifesto promises.

Economists’ herding instinct waxes and wanes – for all that it’s claimed that four economists will have six opinions, consensus usually sits within a narrow band. Nonetheless, the profession was nearly unanimous in breathing a sigh of relief: while no one likes to pay more tax, if it’s necessary to do so, broad-based, progressive and simple measures are preferred over potentially distortive salami slicing across myriad policy areas.

But political winds appear to have blown the ship of state off this sensible course.

Three factors led Reeves to turn hard-about towards the near certain disaster of what’s widely being described as a “smorgasbord” Budget.

Firstly, after bruising revolts over cuts to pensioner and disability benefits, both Reeves and beleaguered Prime Minister Sir Keir Starmer appear to be genuinely concerned about backbench Labour MPs refusing to vote for the Budget if it breaches manifesto promises.

That the parliamentary Labour party enjoys a veto on pulling major fiscal levers is the key reason gilt investors have taken fright.

Next up is the related matter of Starmer’s inability to provide Reeves with political cover.

His polling is dire. Just 13% approve of his performance; 79% are dissatisfied. An ill-judged briefing operation out of 10 Downing Street last week designed to shore up Starmer’s position and see off potential leadership challengers blew up in the premier’s face.

In a staggering parallel with the doomed centre left administrations of both France’s President Francois Hollande and Germany’s Olaf Scholz, Starmer appears so afraid of his own shadow he cannot stake out the bold prospectus necessary to forge a path for the national journey – which compounds his unpopularity and creates a doom loop. Timidity has won the day.

Finally, the UK’s Office for Budget Responsibility (OBR) revised its tax receipts forecasts, cutting – even if fleetingly – the size of the fiscal black hole closer to GBP 20bn than GBP 30bn and providing limp justification for a tax u-turn.

This is no way to run fiscal policy.

Reeves risks the slim fiscal headroom against her own rules being slashed away by the OBR at the stroke of a pen in any subsequent forecast, which would lead to further speculation about tax rises in 2026 and beyond.

Far better to pull the big levers now and, if possible, throw back some tax cuts in 2028-2029, when Labour hope to be re-elected.

Volatility, uncertainty, complexity – all of these are “kryptonite” for boardroom executives, investment and credit committees looking to put capital to work in the UK, according to Patrick Sarch, who heads White & Case’s UK public M&A practice.

Yet that’s exactly what this Budget process has delivered.

With fiscal measures now being rushed after a last-minute volte face, it seems all-but certain business – which had hoped to sit out this fiscal event after significant employer national insurance contributions (NICs) increases in last year’s Budget – will be tasked with digesting an unappetising and incoherent selection of tax tapas.

“It’s death by a thousand cuts,” one advisor working with corporates and sponsors on political risk management said.

Domestic UK deals in the mid-market and upper-mid market are getting harder to finance and some M&A transactions are simply being shelved due to weakness in targets’ underlying trading, Sarch told Continental Drift. If gilt yields continue to track up, the Bank of England will find it tough to go as hard as some might like in its rate cutting cycle.

If the Budget rolls out as expected, Sarch foresees “a significant increase in financial distress in various sectors”, especially those hit by last year’s NICs hike. This disproportionately hit the care sector and consumer-facing businesses, not least in hospitality.

Yet valuation arbitrage opportunities among London-listed businesses could be enhanced further if government incompetence dents sterling. Pharmaceutical firm Hikma, med-tech player Smith & Nephew, ID tech group GBG, ad giant WPP, and engineering company Weir Group have all been tipped as ripe for the plucking given the weight of overseas revenues on their books.

While a feeding frenzy fuelled by weaker sterling might generate some fat advisory fees, it would scarcely represent a vote of confidence in Britain’s prospects.

And the resultant further hollowing out of the London Stock Exchange would wound a government that had put economic growth at the heart of its agenda.

This column has argued before that Starmer and Reeves’ political careers are in peril. It’s more certain than ever that there will be a change of prime minister and chancellor in 2026 – whether just before or after what are likely to be catastrophic local election results in May is the key unknown.

What seems clear is that their legacy will be one of strategic incoherence and messaging incompetence. Bad news for the British people – but decent fodder for a satirical nursery rhyme.

by John West in London

Continental Drift is a weekly column offering commentary on the macroeconomic, political, and policy forces shaping the M&A landscape across the US and Europe. The opinions expressed here are those of the writer only.