Tony Wickenden: Budget-less Budget season still yields fiscal data fruits

By Tony Wickenden

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Nov 28, 2019

Uncertainty remains and an Autumn Budget is off the cards but advisers must continue to make the most of the economic picture available

Tony-WickendenIt’s autumn and that’s Budget time. A time of high excitement and anticipation at Technical Connection. Sadly, however, the Budget that was scheduled for early November was recently scrapped by chancellor Sajid Javid.

Traditionally, the Institute for Fiscal Studies publishes a Green Budget, shortly before the real thing. The Green Budget examines the economic and fiscal background and weighs up the chancellor’s options ahead of the big day.

In 2019 the IFS, unsurprisingly, had some problems in producing its Green Budget:

  • It had no Budget date that it could work from.
  • It did not know who the Budget-presenting chancellor would be.

The economic outlook was heavily contingent on two imminent events with near-binary outcomes: the UK’s departure (or possibly otherwise) from the EU, since rescheduled for 31 January 2020; and the outcome of the next general election – the date for which has now been set as 12 December 2019.

The lack of dates and abundant vagaries made for a curious set of Green Budget presentations on Tuesday 8 October. For example, Citi, which provided the economic overview, put forward four possible Brexit scenarios:

  1. Base scenario – This assumed there would be a further deferral of Brexit beyond 31 October, resulting in 1 per cent GDP growth in 2020 and below 1.5 per cent in the following two years.
  2. Brexit deal – This scenario would deliver growth of around 1.5 per cent over the next three years.
  3. No-deal Brexit – This would result in GDP shrinking by 0.4 per cent over the course of the next year before increasing by just 0.3 per cent in 2021 and then 1.1 per cent in 2022.
  4. Never Brexit – For Citi, this implies a Labour-led coalition, higher government spending and GDP growth of 1.1 per cent in 2020, rising to 2.2 per cent in 2021 before easing back to 1.9 per cent in 2022.

On the taxes front, the IFS repeated what it has been saying since September’s spending round: that there is no headroom left for giveaways under the current fiscal framework. Indeed, there were two presentations on tax; one dealt with options for decreases, and the other looked at the scope for increases.

Cash yield

At the presentations the tax increase section was a late addition that did not appear in the Green Budget document produced by the IFS. Its appearance was a nod to the fact that the pre-election spending pledges that have been – and will no doubt continue to be – thrown around will require extra revenue as well as additional borrowing.

The message here was a familiar one: taxing the top 5 per cent – the Labour Party solution – simply does not yield enough cash.

The lesson from elsewhere, notably Europe, is that middle income groups could be taxed more to generate more meaningful sums. HM Revenue and Customs’ ready reckoner stats shows that another 1 per cent on all income tax rates would produce around £7bn a year, whereas 1 per cent just on higher and additional rates would raise only about £1.5bn.

The IFS report does not make happy reading for any Budget-time resident of 11 Downing Street. Even after the adjustment to fiscal targets that looks inevitable, manifesto pledges will be difficult to turn into reality. Unless, that is, the next government is a coalition, in which case individual party pledges can be expediently dropped or forgotten.

High degrees of uncertainty

Despite the lack of hard and current detail on the respective tax plans of the main political parties in the shape of detailed election manifestos, it seems reasonably clear that a Labour government, or a Labour-influenced coalition, would probably lead to higher tax rates than a Conservative one. The role of the informed financial planner will continue to be absolutely critical. The greater the degree of uncertainty and prospective and actual change that is occurring, the greater the need for informed advice to make smart decisions.

The demands on the adviser at times like this are high, and they can be added to the existing business-as-usual need to comply and deliver great client outcomes while remaining stable and economically successful.

There really is no substitute for spending an appropriate amount of time to keep up to date with – and ideally ahead of – the issues that your clients are likely to want your counsel on. After all, in their eyes you are the expert, the person they turn to when guidance is needed.

Being proactive in communicating on issues likely to be relevant to particular clients on a kind of ‘saw this and thought of you’ basis will be particularly well thought of.

Tony Wickenden is joint managing director of Technical Connection (a St James’s Place Wealth Management group company).

You can find him tweeting @tecconn

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