Read experts' reactions to the pension changes here.
Chancellor George Osborne unveiled a post-election Budget that was largely anticipated, but has still been lauded as his most radical yet. Experts from the world of economics and investment give their views on some of the key announcements.
Economy
Colin Morton, lead manager for the Franklin UK Equity Income fund:
“There may have been a lot of good news out of the Budget, but industry and investors should look at the downgraded growth forecasts to get a real understanding of the challenges for UK plc. The new normal in terms of economic growth remains lower than most would like and any emergence from austerity looks set to be a lot later than many hoped. It is likely that there won’t be a surplus until 2020, which is too far away for most to cheer about.”
Neil Williams, group chief economist for Hermes Investment Management:
“Post-election Budgets are rarely ‘give-aways’ and today’s was no exception—with the Chancellor looking to correct at a politically advantageous time (the start of the term) up to £17 billion in spending-slippage relative to plans. The onus as expected will fall on targeted welfare cuts, which together with the raising of personal tax thresholds and a national living wage, the Chancellor hopes to incentivise more people into work. In hard macro terms, time will tell how this trade-off plays out in sustaining what’s been an impressive UK growth-momentum.
Nancy Curtin, chief investment officer for Close Brothers Asset Management:
“For a true Conservative government, austerity was always going to be top of the agenda, especially following Osborne’s pledge to run a surplus in normal times. Against the backdrop of the ongoing crisis unfolding in Greece, the importance of fiscal prudence and balancing the books has been thrown into sharp relief. Benefits have borne the brunt of reducing public spending, but it was by no means purely a “bad news” Budget when seen in the round. The economy is in strong enough shape for Osborne to feel he can move forward with spending cuts, while the deficit is shrinking on the back of stronger than expected tax revenues. Yes, we would like to have seen more pro-growth measures announced, but it’s difficult to argue that the economy is on the right track.”
Inheritance Tax
Paul Latham, managing director for Octopus Investments:
“With a significant amount of people’s wealth in the UK tied up in their home, today’s news will provide comfort that their family can now benefit from this nest egg. This is clearly a positive step but for many it will be of limited value. With the cost of the average house in the UK predicted to rise by 22.8% over the next five years, a significant number of couples’ homes are likely to exceed the £1 million threshold by the time the change comes into full effect in 2021. Many people also hold assets other than their homes that may be liable for IHT when they die. In order to take full advantage of the increase in relief, a couple cannot have used up any of their nil rate band in the last seven years. There are also restrictions on who can benefit from the new property allowance. While today’s news will help ease the burden of inheritance tax liabilities for some families, it is likely to be less impactful than initially anticipated, especially considering that the existing nil rate band of £325,000 on assets excluding property is also now fixed until 2021.”
Dividend Tax
Ian Kavanagh, investment manager for Hargreave Hale:
“In the current low interest rate environment, more people now rely on dividends to support their pension income and this change will be particularly welcomed by those for whom this income top-up is most vital. We broadly welcome this change albeit those investors receiving more than £34,000 of dividend income will be disadvantaged. This will mean the use of ISA allowances and pension reliefs will become ever more important, where appropriate.”
Corporation Tax:
Guy Ellison, head of UK equities for Investec Wealth & Investment:
“Businesses will rejoice at a further reduction to corporation tax to 18% in 2020 which will maintain and indeed further the UK’s position as having one of the lowest corporate tax rates of any developed nation. The effect of a reduction in Bank levy over six years should be monitored closely; whatever is left of the levy will only be focused on UK balance sheets, but the reduction and narrower focus will be offset by an 8% incremental taxation on bank profits from January 2016. This could potentially hit domestically-focused and ‘challenger’ banks hardest.”
Employment
Colin Morton, lead manager for the Franklin UK Equity Income fund:
The new living wage, whilst a triumph for workers, will also pose problems for the retail and leisure industries which have traditionally paid their employees minimum wage as a matter of course. It will be interesting to see how the bigger brands adapt and amend their practices under this increased pressure and scrutiny. On the flip side, we could see a recycling of cash back into their pockets as consumers now look set to have more money in their pockets and thus more money to spend.”
