Comment: Autumn Budget 2021
Written by Kel Nwanuforo, Investment Specialist.
‘A new era of optimism’.
That was undoubtedly the phrase in Rishi Sunak’s Autumn Budget Statement which was meant to grab all the headlines. And given that the Chancellor announced a raft of upgraded forecasts from the independent Office for Budget Responsibility – on everything from economic growth to borrowing to unemployment – you could make the case that it’s a fair shout.
That said, anyone painting a mental picture of a ‘new era’ inevitably invites their audience to make comparisons with the ‘old era’. Which seems like an apt point to recall that Britain has been run by Conservative-led governments for more than eleven years now…
Whether this arguable slight against his Conservative predecessors George Osborne and Philip Hammond was intended or not, there can be no doubt that that this Budget did represent something of a step change in how the government approaches public spending.
After years of austerity as budgets were squeezed in the 2010s, Rishi Sunak’s plans for meaningful real terms spending increases across every government department were more reminiscent of the kind of plans Gordon Brown would have drawn up in his heyday.
All else being equal, higher public spending should be positive for overall levels of demand in the economy – which should be good news for investors in the UK. Further, if directed towards value-adding areas, it should be positive for growth in the long-term too. On this front, the Chancellor made a lot of encouraging promises about greater investment in capital infrastructure and skills training… though it is worth noting that the Treasury is a dab hand at saying more than it actually does with this kind of thing.
The bad news is that to pay for it all, the UK now faces the highest overall tax take since 1950, when Clement Attlee’s radical Labour government ruled. Let that sink in for a moment! (It’s also worth noting, though it went unsaid, that increasing the tax take could be a decision made with an eye to reining in above-target inflation in too.)
One small silver lining for investors here is that by increasing the tax burden to such heights, the government’s plans for borrowing were reduced considerably. Gilts saw yields fall markedly on Budget day, representing gains in capital value for those already holding. Of course, lower market interest rates also represent a boost for businesses, consumers and mortgagors across the economy too.
Elsewhere, this was arguably something of a ‘boring’ Budget for the financial advice community. There was no change to income tax bands or rates; nor to capital gains or inheritance tax and no meaningful adjustments to ISAs or pensions – all another far cry from George Osborne, and his frequent tinkering. A review of the charge cap for pension schemes was about as exciting as it got for advisers. Perhaps, as they say, no news is good news?
Finally, save for the reduction in the Universal Credit ‘taper rate’ for the lower-paid and unemployed, there wasn’t a whole lot in the Budget to ease the pain of recent developments. Indeed, families across the country continue to face the prospect of higher prices, rising gas bills, a possible rate hike from the Bank of England and a sizeable increase in National Insurance in April, with little other to help from the Chancellor than a freeze in Fuel Duty.
It’s all enough to make one wonder – by the time Mr Sunak delivers his next Budget, just how many of us will be watching and feeling that that promised ‘new era’ is well underway…