Last week's Budget from Chancellor Rachel Reeves introduced changes with major implications for clients and advisers, especially in tax policy, public sector investment, and economic priorities. With searches for 'Autumn Budget' increasing by 1,031% over the past month, it's clear how attentively both clients and advisers are following these updates.
Key Changes to Note:
These changes reflect our current understanding of the Budget, pending further details in the Finance Bill.
Budget Reaction
Rachel Reeves, as the first female Chancellor of the Exchequer, presented her budget with confidence and a strong critique of the previous administration. Her plan includes tax increases totaling £40bn, and she cited 14 years of Conservative mismanagement, referencing Brexit, past fiscal issues, and a £22 billion shortfall in their accounts.
Political Tensions
The budget statement drew a strong reaction from Rishi Sunak in his final front-bench appearance. The Office of Budget Responsibility (OBR) forecasts indicated potential budgetary issues if departmental spending plans are not updated, suggesting a possible £30 billion drift based on previous rounds in 2015 and 2021.
Reeves' budget emphasized initiatives that might appeal to constituents, such as a 1p cut in duty on a pint, investment in infrastructure projects, 1.5 million new homes, a £22 billion injection into the NHS, and a positive outlook for UK growth.
Economic Challenges
The OBR now projects lower growth for the UK under Reeves’ measures than it did for Rishi Sunak in the spring, which Reeves attributes to the OBR working with outdated figures. Inflation forecasts have also increased, potentially keeping mortgage rates high, which could temper the impact of Reeves' policies.
Central to Reeves' strategy is a revised approach to public borrowing. She aims to balance recurrent spending with annual receipts and offset capital debt by accounting for the value of newly created assets. Critics argue that without careful spending, Reeves's proposed £100bn in borrowing could fuel inflation and lead to higher interest rates.
Implications for Advisers
Financial planners must address tax changes with clients promptly. Pension tax reliefs remain unchanged, and there is no return of the Lifetime Allowance, no flat tax on pension contributions, and no new ISA restrictions. However, CGT increases—18% for basic rate taxpayers and 24% for high-rate taxpayers—may impact investment strategies.
Business asset transfers up to £1,000,000 remain tax-free on death but will face a 20% tax rate thereafter, affecting farms, family businesses, and AIM shares. The inclusion of pensions in the IHT regime from April 2027 will require advisers to reassess estate plans, with more detail expected in the Finance Bill.
Growth – at What Cost?
This budget aims to fulfill Labour voters' expectations for increased public service funding without raising personal taxes. Success depends on achieving real economic growth. Much will rely on effectively implementing several proposals set for the spring, including those for the Civil Service, NHS, GB Energy, and the national industrial strategy.
Interest rates may stay high if the Bank of England deems it necessary in light of these borrowing changes, potentially holding back the anticipated growth. This could make next year’s budget another critical moment.
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This article is for informational purposes only and should not be considered as financial advice. Kuldev Sehra Wealth Management assumes no liability for actions taken based on this information. Investment carries risk; values and income from investments can fluctuate, and past performance does not predict future returns.
