Important Information: please keep in mind that the value of investments can go down as well as up, so you may get back less than you invest.
IF you glazed over, you’re not alone. The Chancellor flooded the zone with a torrent of numbers that no ordinary viewer could possibly hope to absorb or understand. It is a tried and tested approach on Budget day, but Rishi Sunak has bettered even Gordon Brown in the art of distraction.
In practice this didn’t really matter, because he had already given us the Budget’s most important number in the first five minutes of his speech when he admitted that inflation will average 4% over the next year. As it is currently running at just above 3% the implication is clear. Price rises are heading towards 5%.
The second important number - the 1.25% hike in employer and employee national insurance contributions - we already knew about. The tax burden is running at close to the peak for the post-war era.
The final important numbers were also glossed over early doors. After the V-shaped recovery from the pandemic, the growth rate for the UK economy soon settles back to the disappointing level it has stood at since the financial crisis.
It is that combination of sluggish growth, lower incomes and a sharply rising cost of living that characterises the post-pandemic reality for most people. This was the opportunity for the Budget to address but the Chancellor dodged it.
In one key way, Mr Sunak got lucky. The significant hike in the short-term growth rate from 4% to 6.5% provided the cover for a blizzard of spending commitments, including the promise that no government department will see a real-terms cut.
The public finances are in better shape than we thought six months ago and the OBR has scaled back its estimate of the long-term scarring from Covid. Compared to the Armageddon scenarios we were considering 18 months ago, the economy has stabilised.
This sets the Chancellor up for a tax-cutting run in to the next election in two to three years’ time.
There were some eye-catching anomalies in the Chancellor’s speech. The most striking of these was the decision to cut air passenger duty on domestic flights just days before the UK is due to host the COP26 climate summit in Glasgow. This seemed strikingly tone deaf.
The second was to present some tinkering with the price of alcohol as much needed government support for people struggling with the cost of living squeeze. With soaring gas bills and petrol prices at an all-time high, this also looked notably out of touch.
For savers and investors there was almost nothing, which is both good and bad. Good in as much as pre-Budget speculation about changes to capital gains tax, pensions contributions and inheritance tax were once again kicked into the long grass. Bad in the sense that the opportunity to encourage further savings and investments was once again passed up.
The well-flagged White Rabbit, significantly cutting the disincentive for people on Universal Credit to find work, is naturally welcome for those in receipt of this benefit. For everyone else they were left none the wiser about how to navigate the cost of living squeeze ahead.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. The minimum age you can normally access your pension savings is currently 55, and is due to rise to 57 on 6 April 2028, unless you have a lower protected pension age. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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