Rishi Sunak pursued a spend now, tax later approach to the budget this year, cautious not to scare away a tepid UK recovery. Guy Foster and Lee Clark from Brewin Dolphin Wealth managers share their insights into the day’s announcements.
Guy Foster, chief strategist, said, “Unsurprisingly, he’s kicked the tax-raising can down the road. For those expecting the worst, they are relieved to only have had their allowances frozen. That story could be quite different next year. This was a well-judged budget, careful not to trample on any nascent recovery. It’s jam today but something far less appetising a few years hence.”
“The big tax increase is coming at the right point in the economic cycle but the wrong time in the political cycle which is another reason to direct it at business rather than employees. So companies can do more than just fix their roof while fiscal sun is shining with a huge benefit for investment and any benefits that accrue to the new freeports. The hope is the economy is an unstoppable force as it meets the immovable object of fiscal repair.”
Lee Clark, financial planner, commented, “Sunak knows now is not the year to dabble with people with higher propensity to spend. Whilst we anticipate that there will be a root and branch reform of the UK’s tax system at some point, the chancellor has given the people who can save the opportunity to keep on doing so. We still have the annual £40,000 pension allowance, a £12,300 capital gains tax allowance and £20,000 ISA allowance. Our advice to our clients is to keep making the most of these allowances whilst they are available.”
Guy Foster, chief strategist, continued, “I don’t envy the chancellor at all. He’s stuck between helping the economy recover and raising taxes to fill the deficit black hole (and prompting a Tory rebellion if he raises them too soon).
“Within that context, he clearly feels it’s too early to be raising taxes. But he has clearly found some early easy wins, like simply not raising tax allowances, like the pension lifetime allowance, which will start to fill the void. Freezing the lifetime allowance is effectively a tax on pension withdrawals and so will have consequences for spending and growth. The current need to repair the public finances seems to be undermining the ever-present challenge of encouraging people to save for their retirement.”