Reflections on the Budget fallout – three months on

I have a simple rule of thumb; the busier it is for me, the worse it is for the economy! Given that I have never been so busy, this is not good news. The Rachel Reeves Budget is a gift that keeps on giving ... to tax lecturers and the Opposition.

Having discovered a ‘black hole’ of £22bn (the figure was not supported by the Office for Budget Responsibility), the Chancellor spooked businesses and individuals for four months with warnings of painful decisions. The measures, particularly the employer’s NI threshold reduction to £5,000, have led to increases in inflation, downgraded growth and gilt yields higher than in the aftermath of the Liz Truss/Kwasi Kwarteng Budget.

Quite how adding at least £615 to the cost of employing the lowest paid on entry level jobs was going to encourage growth has yet to be explained. For most, the cost is much higher. One of the most important aspects of any Budget is the effect on consumer and business confidence. Three months on, all surveys show confidence plummeting to levels seen in the last financial crash.

To see a parallel, one needs to go back 50 years, to the Late Great Denis Healey, who grappled with a true economic crisis. 1974–1979 featured several U-turns, emergency mini-Budgets, public borrowing overshoots, Sterling crises and the infamous bail out by the International Monetary Fund. Hopefully we avoid that denouement.

Given that almost every redundancy, pay freeze and profits warning is being blamed on the Budget, the economy is in danger of going into a self-perpetuating doom loop. That is before one considers the supermarkets’ publicly voiced concerns on the effect of the cutting of APR on food security.

The U-turns have already started; the non-dom proposals are to be watered down to try to slow down the millionaire exodus. Given that the top 1% of taxpayers pay about 30% of income tax, this seems sensible. With the large majority in the House of Commons, the Government can get any measures it wants passed into law. But the Government, to its credit, does seem to listen to big business. The Budget held two weeks after the Invest in Britain conference did nothing radical on Corporation Tax. The non-dom changes were announced at the Davos World Economic Forum

So, what should the practitioner be advising? Employers should be looking at elements of remuneration such as tax advantaged share schemes and other benefits which do not attract national insurance. Payments into pensions are still attractive. On the other hand, the fiasco of people withdrawing pension pots prematurely should remind everyone that knee jerk tax planning can be disastrous.

Looking ahead, the IHT changes to BPR and APR in 2026 may be altered as the pressure ratchets up. Moreover, at that point there are only three years to the next General Election. There could be a return to the 2007–10 position where the political parties competed to reduce IHT.

My lodestar is that by all means accelerate plans that you were planning to do in the next year. However, do not turn your life upside down because of changes that may not happen or may be reversed.

So, my advice is to keep abreast of clients’ plans, watch for changes and wait for opportunities.