I think I have fielded more enquiries about the upcoming Budget than I did during the Covid crash.
Why is that? In a word “uncertainty”.
Whereas the Covid crash was shocking the likely outcome was pretty certain – the biggest and best companies around the world would continue to make money – very simplistically they would continue to invest “100” and make “150” in return. Those profits would be reinvested and/or shared with shareholders and, in time, more and more people would recognise this and stock markets would recover, we just had to keep our nerve. Our clients inherently accepted that and have since reaped a huge benefit from having done so.
On the other hand our new Government has created a great deal of uncertainty. But, with a bit of clear thinking, I think much of the uncertainty can be allayed. Here is my current thinking:
- The UK Government needs more money – despite having more to spend than any other Government ever.
- They solemnly promised not to raise the rates of income tax, VAT, national insurance or corporation tax - although the continued freeze of allowances is the same as a tax increase.
- Capital Gains Tax (CGT) and Inheritance Tax (IHT) were not mentioned and we can expect changes to be made.
- However, CGT is easily avoided - by simply not selling something there will not be a gain to tax.
- Similarly, with a bit of sensible planning, most IHT can be avoided too.
- In short, changing either or both of these taxes will raise little, and nothing approaching the £20bn or so that’s needed.
- Both will change for political reasons.
- Similarly, “rich foreigners” can easily avoid any action against them by not being here. This is why those proposals are already being watered down.
- In short, tax increases like these will not get the Government the extra money they want.
- Therefore the only option is to borrow more.
- The previous Government had rules limiting their ability to borrow.
- The new Government can easily change the rules allowing them to borrow more.
- Borrowing more is great as long as borrowing “100” results in an improvement of “150” – i.e. the borrowed money pays for itself through investment in things like new buildings, roads or higher wages with the promise of improved performance/changed working practices.
In short, I don’t see much uncertainty regarding tax at all and therefore making financial decisions on the back of what we think might happen is likely more costly than the tax changes.