Budget: Elephantine problems - big opportunity

Elephantine problems: big opportunities | Sergey Novikov - stock.adobe.com

For the Chancellor and the still new-ish government, it’s their prime opportunity to set the agenda for this parliamentary term and lay a foundation for solid, sustainable growth.

This is no small challenge, not least because it seems likely the parlous state of the public finances means that both tax rises and spending cuts seem inevitable. What kind of growth can be delivered from this starting point and how long it will take, only time will tell.

Secondly, it is an opportunity for the government to get the most unpopular stuff out of the way early. That’s one of the reasons it all feels so fervid right now.

One thing we think we can be confident about in this Budget is that pensions will not go untouched. There has been considerable back-and-forth on exactly what will change, with proposals floated then hauled back in. One thing is clear – this chunk of capital is too tempting to a Chancellor under fiscal pressure.

Changes to tax relief on employee pension contributions appear to have been ruled out, for now at least. They would have had the dubious distinction of being both unpopular and complicated to roll out, with the real sticking point in the realm of defined benefit public sector pension schemes.

Focus has shifted to removing relief on employer National Insurance (NI) contributions instead. This would be easier to deliver and, according to reports, might raise around £10 billion. Currently, where an employee is paid a wage, NI is levied on the individual and the company at 8 per cent and 13 per cent, respectively.

Under salary sacrifice schemes, if the same amount is paid as a pension contribution neither are subject to NI.

I’m not going to rehash the semantics of whether changing this relief is raising a tax on working people. While it certainly targets businesses, the Institute for Fiscal Studies has already warned that the costs are likely to be passed on to workers through lower or slower pay rises. Industry has warned that the costs will be passed to their customers. The money has to come from somewhere. And it won’t be going into your private pension.

Still, there remain many opportunities for the new government to lead on meaningful change in pensions. Will any of these measures help encourage people to pay into their pensions? Will the government begin to address the gargantuan elephant in the room of the inter-generational problem of paying the public pensions bill?

The opportunity to build something for the long term often means grasping the nettle and making difficult decisions for the future. So, let’s not be short-termist in our reaction to what comes down the pipe next week. Financial planning and personal finance broadly speaking are long games. We at Calton are looking at this budget as an opportunity to take stock. After the statement, we will be getting to work making sure that clients’ financial plans are up-to-date and that their pensions, ISAs and other investments are optimised.

What we will be doing –and you should be doing too – is look holistically at the whole picture. Do you have a collection of pensions that you haven’t consolidated or some investments that are just gathering dust?

It doesn’t matter how small they are, whether you weren’t planning to touch them for years. If you have an financial adviser, then make sure they have the full picture. Just a bit of preparation can pay off many times over when a Budget claims to be this significant.

The real technical nerdery and the hard work comes after the Chancellor’s statement on Wednesday. We at Calton will listen to Rachel Reeves’ statement and then we will tell you what we think. If you would like to hear us do this, Calton is hosting a live webinar on the evening of Thursday, 7 November to explore what the measures announced in the Budget mean for you.

I will be joined by two experts in their respective fields, with whom we work closely. Lucy Crow, director for private client tax at Henderson Loggie Chartered Accountants, will be talking about the tax changes and their implications. Andrew Spence, chief executive of Aspen, will provide the investment perspective and contextualise the Budget into the wider context of international markets.

And, since we’ll be talking less than 48 hours after the polls have closed in the US election, we’ll take a first look at market reaction to the result. Come along, ask questions. We promise to make it interesting.

To register for Calton’s live webinar on Thursday, 7 November: www.crowdcast.io/c/1ssu2zqg1bms

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