Autumn Budget Forecast

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Transcript below:

Erica Whyte:
With the upcoming autumn budget are still a few weeks away there has been plenty of time to speculate about what is in store for us here in the UK. So as potential tax rise continue to dominate headlines, there are increasing calls for credible growth plans. So, I've got Charles Stanley Direct chief analyst Rob Morgan, alongside Director of OneStep Financial Planning, Lisa Caplan here to talk through the upcoming budget, their thoughts on what might happen, what should happen, and how you and I can be best prepared. Hi both. How are you doing?

Rob Morgan:
Hi, Erica. Good, thank you.

Lisa Caplan
Hi, Erica.

Erica Whyte:
So, Rob, let's start this off with you as our budget expert, there are lots of whispers about potential tax increases as of late. Take us through your thoughts and what might happen or what should happen this October 30th. What do you have to say?

Rob Morgan:
Well, I think is probably the most unpredictable budget. I think that I've experienced in my years in the industry and possibly within living memory. And we've got a new Labor government, big majority, a mandate for change and an urge to fill a so-called black hole in the public finances, warning us of tough decisions and those with the broad shoulders bearing the brunt of that. So, unsurprisingly, in the absence of any sort of concrete announcements, there's a lot of rumour and speculation swirling about what could unfold is being amplified by the press and social media and we've all got to remember not to get too ahead of ourselves. We've got to take that with a pinch of salt. But the fact remains we've got used to a kind of stable situation really with chancellors that like to find a surprise on the upside and occasionally pull a rabbit out of the hat and not massively rock the boat in terms of personal finances in general, albeit it's absolutely the case that the tax burden has increased by freezing, for example, for instance, income tax allowances, you know, creating that so-called fiscal drag over the years. So tax rises from stealth. But this feels different. It's the inaugural fiscal event of a new government. And the chancellor as well has committed to only one fiscal event a year. So there's no spring budget statement. This is the one before the new tax year. So it's going to confirm all of the tax changes ahead.

So what do we know? Well, we think we know that there's going to be no increases to income tax, National insurance, VAT, you know, they fall under the promise not to tax to raise taxes for working people. And although I think probably fuel duty might come into it, but ruling out some of those taxes, some of the big revenue raises means that the chancellor will have to turn to perhaps a larger number of smaller measures to fill the claimed black hole.

So that probably falls on capital taxes, inheritance tax, capital gains tax, the reliefs associated with those that are potentially going to be in the in the spotlight and especially, I think with inheritance tax, we've got a the baby boomer generation hitting their sixties and seventies. The accumulation of wealth that they have is increasingly being passed on through gifts and through the taxation of estates. And often the easiest way to tax wealth is when it moves, when it moves from one party to the next party or when it's when something is sold. So it's a distinct possibility that we'll see those sorts of changes. On capital gains tax as while that could be a move to increase the rate as speculated in the press. On top of that, what we've got is a much diminished capital gains tax allowance of £3,000 a year. So the nets has already tightened now. Or looking at sort of CGT business reasons in some way. But I think the Chancellor needs to be exceptionally careful not to curtail kind of entrepreneurial spirit and the great contribution that small businesses make to the country and to employment, which is so vital for growth.

It would be entirely self-defeating to dampen that down. So it's really going to be a real balancing act. And what we hope is for some growth plans in the budget to get the lifeblood of the economy in full flight, not just maximizing tax revenue in the short term.

Erica Whyte:
And what about pensions? I don't think that you've mentioned that.

Rob Morgan:
Yeah, absolutely. It is worth mentioning pensions as well. There's quite a lot of rumours in the press on this subject as well. And possibly we'll see some changes around the rules, especially I think, relating to larger pension pots. And I think I hope and expect this to be around the edges as a full pension and retirement review is going to be taking place led by the Pensions Minister Emma Reynolds. So I think making substantive changes ahead of that probably doesn't make a huge amount of sense because they're going to be taking a deeper look at pensions, a detailed appraisal of the entire retirement landscape. And it's also quite difficult to change things such as pension tax relief in short order because it's built on very established practices and systems. So it's a brave chancellor that goes there in the short term. And I think that would need a lot of time and planning to look at. But absolutely, there could be some tweaks overall. I hope there's some stability in that department to people in the time being. So that's a short summary of where we are. But of course, it's very much conjecture at this point.

Erica Whyte:
From a personal finance perspective, what kind of consideration do you think people should be keeping in mind Lisa?

Lisa Caplan:
I think to watch out for knee-jerk reaction, we don't know what's in the budget and to make decisions now that could actually put you in a worse position. I think people need to be careful. I've spoken to quite a few people who want to take their tax-free cash now, which it sort of brings it into inheritance tax. It takes it out of a beautifully tax-advantaged environment. I would really hesitate to do that if you need it for something, perhaps to pay off the mortgage. That's your long-term plan. You may want to accelerate that a little bit, but otherwise, I think do be careful of the new the knee jerk reaction. The other thing people have been talking to me about is capital gains tax. It's the same it's the same story. If your investment is good and you want to keep it, keep it. But if you have questions about an investment, well, maybe make a decision about it now. But no knee jerk reactions. My, personal view is that Labour has come into government with a with a big majority of based on growth. And now is not the time to be careful and to do little things around the edges. It's about growth. They've got a good mandate. Yeah, be brave is what I think.

Erica Whyte:
I think one of the biggest reasons I speculate that people are making these the knee jerk reactions is because there is so much doom and gloom in the media right now about what is or what could happen or what might happen. So I think people are kind of freaked out.

Lisa Caplan:
I think the newspapers and the media will put in stories that people want to read. Inheritance tax is the most hated tax, but it's paid by very few households in the end. And actually it's a very small take, very small part of the tax take. It's not the answer to the black hole in the budget. Yeah. And the media puts out that would people will be right.

Rob Morgan:
There's certainly a kind of a narrative and yeah it's all too hard to unpick really how much of that is kind of the government and how much of that is actually the media narrative around what the government is saying or not saying.

Erica Whyte:
Sensationalism.

Rob Morgan:
But you know, the fact remains that they haven't said a whole lot on sort of concrete growth plans. So, you know in the budget we would hope that they clearly do that and they, you know, turn that around, turn that sort of more negative narrative around and give people sort of some hope and confidence. And, you know, that's it is quite sort of difficult for businesses when they've got uncertainty and just having that concrete, you know, you know, fiscal regime and tax certainty for businesses is going to be so, so important and instilling that confidence. So, you know, it's unsurprising that in this sort of countdown to the budget that people are hesitant, People don't want to do things. So I think, once the budget's out of the way, hopefully that will that will change.

Lisa Caplan:
I think it's if it makes people look at their finances and make plans, I'm always in favour of that. But the things that people don't do, which aren't that related to the budget, which are much more important, I speak to so many people who haven't got a will. That's the most important thing that you can do in terms of your legacy and your inheritance that you leave behind. It makes life so much easier. Make sure that money goes where you want to go. Do that first before anything else.

Erica Whyte:
I'm going to get back to you on this will thing, because I do think that it's a very important thing for listeners to be considering. But quickly, just before our last podcast, a couple of announcements have been made when it comes to the budget. I'm going to miss them all for you guys, if that's okay. So the government has said that VAT will be added to private school fees from January one, and that's a controversial one, at least among my friend group who have lots of young kids in school. Right now. The state pension is set to rise by 4% in April 2025, in line with the triple lock arrangement, which guarantees the state pension increases each year by 2.5% by inflation or by average earnings growth. Whichever figure is highest winter fuel payments, which, Rob you did mention the government has said will only be made to those getting pension credit or other means test to help a move that has been criticized by some MP unions and charities. And there will be an increase on the windfall tax on profits of oil and gas firms in the UK, rising to 38% from the previous 35%. Any thoughts on those changes, either of you?

Rob Morgan:
Yeah, well, I think the school fees was VAT on school fees well flagged. We clearly knew that was coming and people had suspected as much. The winter fuel allowance did come out of the blue. I think I was quite surprised and clearly quite emotive as well. So, you know, I think it probably does illustrate that now this is a chancellor not afraid to make kind of bold decisions, decisions that are met with some dissent and they're unpopular. And again, that's fed into the narrative that it's put people on their guard. Just on that they have committed to the pension, state pension triple lock, which means that some of the money that's been taken away from the from but with the winter fuel allowance is kind of being added back from next April. But that, of course, doesn't help because people have to pay for their energy bills in the winter. But we do now know that that the state pension is going to be rising by 4% in the spring. So that's about £460 a year for the average person. So it's something. I'm not sure what the sort of opposite of the rabbit from the hat is, but I'm guessing we could get more of them in the budget cuts amongst the pigeons maybe.

Erica Whyte:
And I think one thing that you mentioned is that you say that Rachel Reeves, she's not making popular decisions that she's on here, too. She's not trying to win a popularity contest. Right. She's here to do a job.

Lisa Caplan:
It's the mandate point. She should do this now. There's five years until the next election. Potentially. Probably and huge mandate to do things that it's definitely emotive one it's people look at this that people who are on pension credits of people who really need the winter fuel allowance will still get the winter fuel allowance.

Erica Whyte:
So as you mentioned previously Lisa UK families are being encouraged to get their affairs in order by drafting a will, particularly as this new Labor Party government plans on a tech tax clampdown. Potentially. Can you shed a bit more light into this and why it will is important even if you're a young person? Lisa, what can you share? I know you love this topic.

Lisa Caplan:
People often think, everything will go to my wife, you know, it'll all be fine. But the all intestacy rules. But it's complicated. And why not do something which is relatively simple and just write down what you want to happen to your money when you die? It's not that expensive. It's not hard to do. And it means your legacy is sorted out. But more importantly, it just helps your loved ones who are sorting out your affairs after you die enormously. It makes it so much easier for them. And that's why I would really encourage anybody to do it. Young, you know, old whoever. And it can be changed. It's not final. If your situation change, if the tax rules change, it's easily changed. Your will is easily change.

Erica Whyte:

You've said something to me about this that has been really impactful for me and something that I have regurgitated at dinner parties since you said it to me. But you've mentioned previously that a will is a gift to your loved ones. You're long gone by the time that anybody needs it, but it is a gift to your love loved ones for them to be able to know where you are wanting things to be going instead of whatever else could happen afterwards. Right.

Lisa Caplan:
It's an absolute gift to your loved ones. It's a very generous gift because you aren't there anymore. But it's making sure that it's easy for them and your money goes to the right people.

Erica Whyte:
So, Rob, anything to add on that or do you want to plug our upcoming webinar before we close out here?

Rob Morgan:
Yeah, I think just this sort of summary ready to say kind of, yeah, we're still in the realms of speculation, you know, regarding the budget, but also that don't panic because most changes are unlikely to happen overnight, or mid way through a tax year. I say that with some trepidation because George Osborne did actually raise capital gains tax overnight in 2010. So there is a precedent, but for most things that's hopefully going to be an opportunity to mull things over and consult with advisors if necessary. And as well, we'll be covering the budget. There's articles on website in our insight insights section on all of these issues in more detail. So we'll be keeping in contact with everything and letting you know and there will be a special post-budget webinar as well where we'll take the contents and what it means to people. And we emphasise you don't have to face it on your own as well because we've got financial coaches like Lisa. You can answer many of your questions around these issues so you can think about your options will clearly and get the help you need.

Lisa Caplan:
Yeah, if you want to speak to one of my team, we offer a free 15 minute telephone call. You just ask your question and we'll try to answer it for you in 15 minutes. And if we can't, we'll help you to find your answer elsewhere.

Erica Whyte:
Fabulous. Rob, Lisa, thank you both so much for chatting with me here today. And we'll be chatting again very soon about these topics and much, much more. Thank you guys so much. Again.

Lisa Caplan and Rob Morgan:
Thank you.