I do not envy the Chancellor of the Exchequer. Rachel Reeves has to walk a tight-rope in delivering a Budget on October 30 which supports the new Government’s agenda.
The fiscal situation is precarious, expectations around investment in parts of the public sector are high, and taxes that account for almost 75 Pension raid: Speculation is growing that Chancellor Rachel Reeves will reduce the tax-free lump sum that can be withdrawn by savers from their pension pots of Government revenue have been ruled out for changes.
The Government has sought to reassure by stating that changes to income tax, National Insurance and VAT are off the table, while still being clear with the country that difficult decisions will be taken, that the Budget is likely to be ‘painful’ and that the impact will land disproportionately on those with the ‘broadest shoulders’.
Don’t panic: Mark FitzPatrick, chief exec at St James’s Place, has seen some clients accelerating withdrawals of tax-free cash from their pensions as Budget day approaches
Speculation is therefore rife about the remaining likely revenue raising levers. This is causing uncertainty and resulting in changes of consumer behaviour, some of which may not be in their long-term interests.
At St James’s Place, we have seen clients trying to navigate the uncertainty, with some considering accelerating withdrawals of tax-free cash from their pensions as Budget day approaches.
We know that the risk of our clients taking action, however, is likely lower than for others in the industry because they have advisers on hand to help them avoid potentially damaging decisions.
But once tax-free cash is taken out, very often the potential pension-related advantages are lost for good.
I know that financial advisers up and down the country will be standing ready to help you understand and manage any changes that are announced at the end of the month.
I would urge each and every one of you to take the advice available, ensuring that any changes to your personal finances are met with a proportionate and sensible response rather than a hasty reaction.
Against a backdrop of shrinking UK equity markets and an outflow of money from UK-focused equity funds, and with the Government’s objective of increasing investment in British assets and growth, we should avoid doing anything which further reduces investment.
This Government knows, better than anyone, that a growing economy is the only way to deliver the scale of tax receipts needed to invest in the public sector.
It is for this reason that I would encourage the Chancellor and teams in HMT [the Treasury] and HMRC [Revenue & Customs] to carefully navigate the path towards October 30.
With a challenging fiscal situation, I think all of us who are privileged enough to be better off should expect to contribute more if our Government asks us to.
But the Chancellor will also know that tax rises must not lead to damaging unintended consequences such as disincentivising those of you saving towards your pensions and investing in your long-term financial futures.
Mark FitzPatrick is chief executive at wealth management firm St James’s Place
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