One would expect the new government, with its strong mandate and renewed sense of purpose, to use its first budget to make its mark, but as previous years have taught us, we shouldn’t jump the gun. And nor, more importantly, should the Government.
Given the outcome of the General Election, it’s understandable the new administration will wish to make an immediate impact with big spending pledges but acting too quickly for the sake of it risks uninformed policy changes. A more prudent approach would be to announce consultations with a view to introducing changes in 2021.
The new team in Number 11 haven’t had a great deal of time to work through Budget proposals, but that hasn’t stopped all the speculation. With the tax burden at its highest level in over three decades, it’s no surprise that there is an ongoing discussion about significant reforms. With a commitment not to change the rates of income tax, national insurance and VAT, the new Chancellor will be looking for other avenues to raise tax. And while in principle we agree that many areas, including capital gains tax, inheritance tax and pensions are ripe for review, we would urge the new Chancellor to consider any decisions carefully.
Changes around pension policy, which often finds itself in the spotlight at Budget time, is a good example to point to here. In 2006, we saw significant reforms in the shape of ‘Pension Simplification’, and similarly 2015 became known as the year of ‘Pensions Freedoms’. While they may have their merits, both sets of reform delivered complex and unwieldy policy, with as many ‘winners’ as ‘losers’ and some unconsidered consequences.
It’s no secret that many believe pensions require major surgery, so to speak. But whether the new Government is considering reforms to this policy area or others, we would much rather they do a comprehensive review of the whole system to make it simpler, rather than just tinkering around the edges.
Roger Clark is Head of Wealth Management, Brown Shipley and joins the panel discussion the morning after the chancellor’s announcement at The Herald Budget Briefing Breakfast.
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