From the Investment Team:

Whilst Rishi Sunak was on his feet, our eyes were drawn to the economic forecasts released by the Office for Budget Responsibility (OBR) in parallel with the Budget, to check on two of our favourite topics, inflation and productivity. The lack of any mention of the latter in Sunak’s speech gave us a clue to what we would find when we went through the 251-page document: flat productivity.

It is possible that the wave of investment subsidies we wrote about in March this year still haven’t fully taken effect but the mass adoption of technology in the pandemic has yet to make a material impact on productivity, which is the main driver of real wage growth in the long run. This leaves the words quipped by Nobel prize winning economist, Robert Solow, in 1987, “You can see the computer age everywhere but in the productivity statistics”, ringing in our ears.

A welcome announcement was the news that the UK economy is expected to return to its pre-pandemic level by the end of the year. The OBR has revised its forecast for 2021 GDP growth up from 4% to 6.5%, and predicts further growth of 6% in 2022, 2.1% in 2023 and 1.3% in 2024. Meanwhile unemployment is expected to peak at 5.2% next year, much lower than the 11.9% previously forecast, and borrowing as a percentage of GDP is expected to fall from 7.9% this year to 3.3% in 2022.

During his speech, the Chancellor acknowledged that inflation is currently at high levels, and revealed that the OBR expects the Consumer Prices Index to average 4% throughout the next year. This is already having an upward effect on interest rates and this can have a particularly large negative impact on long-dated bonds so we have positioned the portfolios to minimise interest rate risk.

Jacob Reynolds, Head of Asset Management and James Timpson, Deputy Fund Manager

From the Private Client Team:

One of the main statements made by Rishi Sunak was towards the end of his budget. His statement was that by the end of this electoral term, he wants UK taxes to be going down not up. There was talk before this budget that capital gains tax (CGT) rates could be brought in line with income tax rates, which a recent analysis stated would raise an extra £16bn per year if implemented. Given the Chancellor’s bold statement it would seem unlikely for there to be any future changes to align these two tax rates. The only change to CGT rules in this budget surrounds the payment requirements for property sales. From 27 October 2021 the deadline to report and pay CGT after selling UK residential property will increase from 30 days after completion, to 60 days.

The Chancellor has not made any changes to income tax, inheritance tax or put in place any pension reforms. This budget means that our clients can continue with the tax planning strategies we have put in place for them.

Tom Stephenson, Adviser

From the Corporate Client Team:

In many ways an important budget, the first one post the peak of the pandemic and post-Brexit Britain.  It focused on the grand themes of rebuilding the economy and levelling up.  However, pensions wise the announcements were few and far between and nothing definitive for now.

It was announced that the government will launch another consultation into the defined contribution (DC) charge cap, which it hopes will lead to both better saver outcomes and  increased investment in illiquid assets such as infrastructure projects and green energy.  However, many in the industry have already pointed out that fees are only one part of the equation when it comes to investing in illiquid assets.  More work is needed in terms of transparency and better support to trustees making decisions on whether or not to invest pension funds into illiquid assets.  This is something we need to get right, particularly the investment in Green Energy part.  A recent report by Make My Money Matter found that UK pension schemes are funding more emissions – 330 million tonnes of carbon every year, which is more than the nation’s entire carbon footprint. Clearly the industry could do better but its needs government support and the charge cap is only part of it.

Class 1 National Insurance payments are rising by 1.25% in April 2022. You can reduce the impact of the rise by using salary exchange to make pension contributions.  Salary exchange involves you giving up a portion of your salary in return for greater employer contributions.  The salary foregone never goes through payroll, and so you never pay income tax and crucially, in this case, National Insurance.

Tuhin Ahmed, Chartered Financial Planner

We’ll follow this bulletin response with more information in the coming days.