Video: Chancellor’s announcement – What should we expect?

HL’s Personal Finance analyst Sarah Coles and Nathan Long, Head of Policy, discuss Chancellor Rishi Sunak’s options and what those options could mean for investors. Including:

• What to expect – and what not to expect
• Looking ahead to the autumn and the next Budget
• If we rule out austerity where could the Treasury look to boost their coffers?

This video is not personal advice. If you're not sure whether an investment or tax shelter is right for you please seek advice. If you choose to invest, the value of your investment will rise and fall, so you could get back less than you put in.

Tax rules including Pension and ISA legislation can and do change and their benefits will be dependent on your own circumstances.

Views correct as at 30 June 2020.

Transcript

Sarah: Hi, I'm Sarah Coles, I am a personal finance analyst and I'm here with Nathan Long.

We're talking about the July statement which the Chancellor is expected to give and really having a look at what might be in it and what's likely to be out of it.

So Nathan, your view is really that this is much less about clawing back some of the enormous amount of money that's been spent during the crisis and more about maybe a stimulus to help to get people spending and help businesses get through.

Nathan: Yeah absolutely.

I mean at the moment this looks still like we're in a very fragile position so I think the government's approach is going be very much to spend, to try to encourage us to spend, and get the economy back on its feet. So I don't think you're going see much of that kind of clawing back of the cost of the furlough scheme, and the help for the self-employed, in July.

I think that's going to come probably in the autumn but not in the near term.

Sarah: So when the Chancellor is preparing us for the Autumn Budget (or after that) they'll be an opportunity there for him in order to try and get some money back.

Now when this gets discussed pensions very much come into the frame and in this instance it looks like people are talking about changing the pensions triple lock.

Now that seems like a really big, dramatic change given what a bedrock it is for people's pensions.

Nathan: Yeah that's right.

Your wording there is absolutely spot on - it's the bedrock of people's pensions. So it's really difficult to alter that and to tinker with that and it's probably not going to be particularly attractive to do so. But I think we just need to bear in mind where we are currently. We've seen a monumental amount of money thrown at this problem so we, the government, has spent a lot keeping the economy going and I think there's a recognition by the public that it's going to need some quite extreme measures to balance the books.

So, we're not going to go back to austerity, I'm you know fairly confident of that, but there's going have to be some changes.

Now, the triple lock has long being kind of looked at as something which perhaps isn't really quite fair. What it does is it increases, because of its construction, it increases the pension payouts or the payouts for pensioners at a greater rate than earnings are increasing for those of us who are in work.

So there's some elements of that that don't really sit quite right with lots of people and so there's been arguments to change that, and to lessen the increases for pensioners - maybe just to keep their equivalence with the workforce.

Sarah: In terms of pensions more broadly, one thing that always tends to come up when we're looking at the government trying to get some cash back is sort of the relief, tax relief, on pensions.

Now what tends to happen is that it comes up, they discuss it, and it gets completely shot down in flames because it's terribly unpopular and then we go back to square one.

But do you think with this change in how the public are feeling that there might be a little bit more support for a change in tax relief?

Nathan: Yes I really do.

I mean it’s just that whole kind of impetus behind potentially some quite radical change. There are challenges to delivering this, it's not easy to deliver, it's also not universally popular to make a change.

I mean let's be clear what we're talking about is this being less costly for the government which means less tax relief so it's not going to be particularly popular. But they've done a lot of work on it, they've consulted on it before, so they've probably got some quite clear ideas on what they might like to change.

So it's definitely possible.

Sarah: So it seems like life isn't going to get any more generous in tax terms for higher-rate tax payers and presumably there's all sorts of potential changes that could be made to the assets people hold - say things like capital gains tax and things like dividend tax?

Presumably this is a time to sit back, especially if you're a higher-rate tax payer and think about what's available to you now and making the most of it?

Nathan: Yes, definitely.

Key here, is the point you've just raised 'it's not going to get better'.

It's quite politically easy to take money from higher earners - maybe not in one massive raid - but that's what we've seen historically being the kind of approach that's been taken over the last decade.

I don't think, if you're a higher rate taxpayer, in reality it’s not going to get better. So you should probably look to be using the incentives that are available to you now.

Now, that doesn't mean completely tearing apart your plans, not spending any money - that's not what we're talking about. It just means that if you're going to make pension contributions this year and next you might be thinking about 'well actually can I afford to do some of them now?' - just to get ahead of any potential changes.

Sarah: Just in terms of capital gains tax, one of the things that you've been talking about is that it's not necessarily the best opportunity to raise capital gains tax because they could make more money by lowering it!

Nathan: Yeah - this is an interesting one isn't it?

Because the thought process might be - if you increase capital gains tax as soon as someone makes a sale all you're doing is taxing assets so there's more money for the Treasury. I think what we need to be mindful of though is the behaviour of individuals.

So, I think, that there's lots of people - particularly those who have buy-to-lets and second properties - who've probably got, are sitting on, quite a big gain on an asset.

Now if you raise capital gains tax all you're doing is locking that person in to that asset, and they probably aren't going to sell unless they get in a position where they're distressed and have to sell.

Well, actually if you reduced capital gains tax what you might do is see more people sell. So almost ironically you get more of a tax take for the Treasury because there's more people selling more assets even though the actual rate of tax they're taking is lower.

So it's an interesting one. I'm not sure we're going see anything this autumn but it’s one to watch for sure.

Sarah: It's going to be interesting to see what happens thanks very much Nathan.

Nathan: Pleasure.

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