Client Login
The return of MPs after the summer brings conference season and lots of speculation about the upcoming Budget, scheduled for the end of November.
We’ve been here before, many times, and first of all, it must be reiterated that everything we hear in the coming weeks ahead of the Budget is pure speculation. There’s an element of “kite-flying” from the government, where a potential idea is leaked to gauge reaction to the proposal and that often snowballs into a dead-cert in the minds of media commentators, only for the proposal to be absent from the all-important speech.
Looking back to last year for example, there was a lot of speculation on tax-free cash potentially being removed as an option and we know some people went ahead and withdrew their tax-free cash. That didn’t transpire. What it means is that as financial planners, regardless of what is debated in the coming weeks and months, we can only ever advise on what is written into legislation.
That doesn’t mean we can’t be having useful conversations though. Sometimes the value of a financial planner is helping people to make rational decisions at times of turmoil or speculation, so we always encourage dialogue.
Is the Chancellor boxed in?
Labour’s manifesto promised not to raise tax on “working people”, which was vague at the time, but has broadly come to mean VAT, income tax and employees’ NI are not increased. That leaves little wriggle room for Rachel Reeves. Last time out it was businesses that were hit with a raise in the employers’ NI rate and a reduction in the level at which it kicks in. That was made tougher with a rise in the minimum wage. Since then, the government has started using terminology like “un-earned income”, which roughly translates into non-salary income, so property, and shares.
That means it is natural for speculation to fall on areas like pensions, CGT, IHT, and business taxes. Of course, the net result of these taxes is a reduction in investment into the economy, which we’re starting to see through a rising unemployment rate (a 4.2% increase year on year, in June) and a decline in hiring demand in the UK falling at the fastest rate in the world.
The bond markets made the front pages rather than just the pinks in recent weeks as UK gilt yields reached their highest point since 1998, amid ongoing concerns that the UK government is not holding up its end of the bargain and stimulating growth. The Chancellor is playing to voters when she makes these decisions, but the bond market has become just as important, as any hint of an un-costed plan is likely to send gilt yields spiking and put pressure on the government to show it can pay its dues.
Government borrowing in August was at a five-year high, with economists estimating that the Chancellor will need to raise taxes by £28bn at the Budget to cover its shortfall.
What about the good news?
Admittedly, it’s tough to find too much good news right now! Sooner or later (if we haven’t got there already) the UK economy will reach a point where the level of taxation is prohibitive to growth and there will need to be a more concerted attempt to empower wealth creators, and that could spur action.
The UK’s tax burden is already at an historic high, so the spending side of the ledger will need to be reduced to balance the books. Attempts to reform welfare and immigration have stalled so far, but recent polling that gives Reform a lead over Labour should encourage Sir Keir Starmer to take more decisive action to show his government can control spending and encourage growth.
He’s unlikely to get much help from the Bank of England at the moment though. Interest rates look likely to remain where they are for the rest of 2025, after a 7-2 vote in September’s MPC decision to hold at 4%. Wage growth has slowed but inflation remains stubbornly high.
How Wren Sterling will cover the Budget
We will issue our Budget Report on the morning after, highlighting any changes relevant to financial planning. Your Financial Planner will be available for you to contact if you have any immediate concerns, plus they will be contacting clients proactively in the days and weeks afterwards.
After that, we’ll be issuing the next edition of Money Matters, our client magazine in early December, which will include more in-depth analysis.
