I listened to yesterday’s Budget with more than a degree of trepidation, after all this was the first real opportunity for the Chancellor to have a crack at balancing the heavily unbalanced books following the Covid pandemic!
Adding to my state of high anxiety was the fact that over the past few weeks there has been talk of Sunak attacking tax relief on pension contributions (again), of removing the ‘indefensibly generous’ tax-free status of pension death benefits and of bringing Capital Gains Tax into line with Income Tax. Imagine my surprise and relief then when none of these issues were even mentioned!
Make no mistake this was a big Budget, with £75bn of giveaways over the next five years, and yet the chancellor was still able to pay down debt.
Some of this was funded by previously announced policies, such as the new health and social care levy, and the downgrading of the state pension from a triple to a double lock.
A lot of this money, around £35bn a year, comes from improved economic forecasts which have given the chancellor an enormous amount of wriggle room.
Those upgraded forecasts have delivered even more than usual for the Exchequer, because of the Chancellor’s decision to freeze income tax allowances at the last Budget.
This means of course, that almost everyone in the country should be on high alert for fiscal drag because wage increases will result in workers paying much more income tax.
On a positive note, fiscal drag clearly elevates the case for tax planning and bolsters the value of tax shelters such as ISAs and Pensions.
As previously mentioned, savers and investors can breathe a sigh of relief over some of the things that didn’t happen in the Budget. There was no rise in CGT, and no cut to the CGT allowance. Pension tax relief and Inheritance tax remain unscathed too.
Some of the Chancellor’s policies however, notably the rise in the national minimum wage, will clearly add fuel to the inflationary fire.
The Chancellor also took time during his Budget speech to reference the Bank of England’s inflation target, and that will only crank up pressure on the MPC to raise rates when they meet next week. Interest rates are often used as something a blunt instrument in combating runaway inflation but many of the inflationary pressures we are facing relate to supply side cost increases and I struggle to see how increasing interest rates is likely to help.
I hope you found the above of interest but please do not hesitate to contact me if you have any concerns or questions relating to anything in this e-mail or indeed any other finance related matter.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
