So we are heading towards a general election, which may come sooner than we expected if the rumour mill is to be trusted. On reflection, hurtling – not heading – towards an election may be a better description.
You don’t need to be a rocket scientist to conclude that last Wednesday’s Autumn Statement marked the start of the path signposted ‘election’, as a cheery Jeremy Hunt delivered the tax cuts that his party (and a big slice of the country) were demanding.
The overall message was: 'Out with financial pain and austerity, inflation is falling and the good times are a coming'. But are they? I’m not convinced.
Of course, the reduction in national insurance contribution rates that the chancellor announced are welcome, especially after three brutal years of seeing our household finances pillaged by a nasty combination of frozen personal allowances and tax rate bands, rising prices, higher interest rates and sky-high energy bills.
But these cuts represent no more than a chink of light on a horizon that is still dominated by dark clouds of a nasty fiscal drag composition. Cumulonimbus fiscus.
I imagine it will take eye-catching tax cuts in next spring’s Budget to convince the nation that the current government deserves another term in office.
Simplicity must be the way forward. Hunt had his chance to be the Isa reformer, he chose not to step up to the plate.The Conservative party may well stand for low taxes and free enterprise, but this government veered wildly off course, not just because of the economic damage caused by the pandemic, but as a result of the cataclysmic errors it made 13 months ago when it flirted disastrously with 'Trussonomics'.
The result? A tax take that the Office for Budget Responsibility says will hit a post-Second World War high over the next five years, irrespective of warming cuts to national insurance contribution rates.
In all the (understandable) focus on personal taxes and the punitive impact of fiscal drag (costing £40bn a year), it’s easy to overlook the harm that is also being done to the nation’s savings habit.
The cutting of both the capital gains tax annual exemption and the yearly dividend allowance has been savage, brutal. This year, the respective allowances are £6,000 and £1,000, compared to £12,300 and £2,000 in the previous tax year.
Barring a volte-face from Hunt in next spring’s Budget, they will reduce again in April to £3,000 and £500, respectively.
Who would have thought a Conservative government could embark on such an anti-savings policy. Yes, a Labour administration led by Jeremy Corbyn, but not the Conservatives.
Although some experts bemoaned Hunt’s decision to leave the annual Isa allowance at £20,000, I’m not sure a higher allowance could really be justified. What was disappointing is his decision to tinker with the Isa rules, rather than declutter them and make the regime far simpler for investors and savers to navigate.
Sadly, Isas are going the same way of pensions. A great idea, but so mired in rules and regulations that most people don’t understand them, and many end up shunning them as a result.
Simplicity must be the way forward. Hunt had his chance to be the Isa reformer, he chose not to step up to the plate.
The months ahead are going to be increasingly dominated by politics.
My message to the adviser world is to use this time to encourage clients to use their tax-friendly investment breaks while they are still available.
No one knows what the future holds for pensions in terms of tax relief. And no one knows for certain what role Isas will play in a future long-term investment landscape, especially if Labour comes to power.
Scaremongering? Me? No. Just cast your mind back to 1997 when Labour came bouncing back into power after years in the wilderness, D:Ream’s "Things Can Only Better" playing loudly in the background.
What was one of the first things that chancellor Gordon Brown did? Launch a £5bn a year tax raid on company pensions, marking the beginning of the end for employee-friendly defined benefit pension schemes.
Jeff Prestridge is group wealth and personal finance editor of DMGT
