On Wednesday, Jeremy Hunt will present his budget. One thing, which we can reliably predict, is that a lot of the media outlets will be presenting articles about how the average family has been affected by the budget. In a globalised financial system, the impact which the Chancellor can have is fairly limited. Much of what he would like to control – inflation, the exchange rate and the growth of the UK economy is beyond his power. He has some influence, but not as much as he would like, and not as much as his predecessors, who worked in a less globalised financial system, and could control interest rates, used to have.
Recent research has showed that the average quarterly growth rate of the UK economy under the Tories, since 1955, has been 0.56%; the average quarterly growth rate under labour was 0.58% (source: Panmure Gordon ONS research 16th November 2022). The difference between one type of politics and another has been smaller than the margin for error in the statistics!
What we do know is that he can directly affect the amount of tax we pay, the benefits we receive, and his actions can also affect sentiment in the economy. The latter is, perhaps, more important than the former.
Some changes have already been announced – we know that the state pension will increase by 10.5% from April, and we know that tax bands will not change. Interestingly, this means that more of the increase in the state pension will be returned to the government through income tax.
We also know that the rate of tax payable on dividends will be a bit higher than it was, and that the amount of capital gains you can make, without paying any tax, will reduce. For some, this will mean that ISAs become more worthwhile, as the tax breaks become greater. But for others, there may be a tax cost of moving assets into ISAs – is it worth paying capital gains tax now, in order to protect yourself against a higher capital gains tax bill in the future? The answer, for everyone, will be different, and taking good advice becomes increasingly important.
After our brief flirtation with Trusssonomics, the Chancellor does seem to recognise that the financial markets are important, and easily spooked. Jeremy Hunt seems to want to avoid causing the same problems as his predecessor – so it does seem unlikely that there will be any major surprises.
And that means that the budget is probably not going to be very important for your finances. There may be some good news or some bad news, but, what happens to the global economy is likely to continue to be more important than any announcement which the Chancellor makes on Wednesday. I expect that globalisation, demographics, technology and climate changes will continue to be more significant factors for your finances than the first budget of 2023.
Philip Wise | email@example.com
Managing Director and Chartered Financial Planner