A first budget as a new chancellor in a new government is always going to be difficult. You have somebody else’s income, outgoings, assets and liabilities, but your way of doing things, values and plans. In that respect, it’s much like winning a new client.
The temptation is to blame the cards you have been dealt and criticise your predecessor. In this case, the mythical black hole in the finances doesn’t really reflect the numbers and is more a version of the fabled ‘there is no money’ note left by the previous Labour government and an opportunity to steal the opposition’s reputation as the economy party.
The black hole represents what they wanted to do, or at least felt they had to do, rather than what was baked into the budget, even if they had used their ‘emergency fund’. Nonetheless, you would have to be brave to tell people they can’t have what they want at the first meeting whether you are an adviser or a chancellor.
The budget comes on the back of an Office of Budget Responsibility report that showed public sector net borrowing (PSNB) £11.2bn lower than forecast, because total receipts were £38.8bn higher, driven in part by inflation and financial sector corporation tax. Total spending was £27.6bn higher, driven by higher debt interest, departmental pay rises and the 2% cut in employee national insurance; the chancellor sought to meet voters’ needs and objectives.
If you are employed, you benefited from a net pay rise because of the previous chancellor’s two 2% cuts in January and April – and that will stay the same. As anticipated, now your employer has to pay 1.2% extra national insurance, on more of your salary and for more people’s salaries, while the minimum wage has also increased.
In practice, this is a government-enforced pay rise that the employer has to pay for
In practice, this is a government-enforced pay rise that the employer has to pay for. Logically, this will bring in structural inflation as these costs are passed on – perhaps one reason why CPI projections are higher than most economists anticipated.
For a financial planner, this does mean that advice on employer contributions to pensions is now even more impactful. Getting it right is more than just auto-enrolment.
It should not be a surprise that a Labour chancellor would take from the employer to give more to the employee. Yet Reeves has been careful to do more for the smallest business owners, with reliefs in high-street business rates, for NI and with capital allowances. There are also opportunities for some business to profit from the increased investment in infrastructure.
We heard last night from the FCA that it is continuing to support the Mansion House Reforms and encourage our investment management industry to buy private assets, theoretically increasing the value of those assets. Now, the chancellor is increasing the capital gains tax that many owners of those private assets would pay on sale from 10% to 18% basic rate and then 20% to 24% higher rate.
If a business owner were to now decide not to sell, they would still ultimately face increased tax on death, with a reduction in business and agricultural property relief. If a business were to use a SIPP or SSAS, they would now be subject to inheritance tax on death, as would the members of the pension funds that are the initial main investors in private assets. Overall, this a backdoor way of taking tax receipts from the same capital assets the government is encouraging people to invest in.
It should not be a surprise that a Labour chancellor would take from the employer to give more to the employee
To a financial planner, this means that a pension may no longer be the only answer for a group of clients for whom it previously was. The enterprise investment scheme and venture capital trust extension is welcome, while the continuation of some business property relief for AIM stock, the tactic of holding a multi-asset fund until death to swap CGT for IHT, and, of course, bonds in trust are all tools that they can deploy to support their clients.
Across the government’s departments, the chancellor hopes to save 2% from the efficiencies possible from integrated technology. Advisers have the opportunity to do even better than that in their business even as advice becomes a little more complex and a lot more valuable to their clients.
The chancellor said ‘invest, invest, invest’ and the public should invest. But in this changing fiscal and economic environment, they will need professional advice and investment management to do so even more than ever.
Chris Jones is chief proposition officer at Dynamic Planner
Comments