James ConeyMar 4 2021

We may have to wait until autumn to see the real Rishi Sunak

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It was the Budget that the chancellor did not want to have, but the one that was so desperately needed.

When he was appointed to the role last year, Rishi Sunak had just a few weeks to prepare for his annual spending statement, when normally chancellors get several months.

And even last March he did not want to have to unveil big fiscal and monetary plans; rather he wanted the Budget to be held in the autumn every year. How quickly plans change though.

So it is interesting that despite having had two Budgets he never wanted, and not holding one that he did actually desire last autumn, we still do not really know what to expect of Sunak.

If word from the Treasury is right, it could demonstrate the chancellor’s desire for the most fundamental shake up since Nigel Lawson overhauled income tax rates

That is primarily because since he last stood up, so much has changed: GDP has slumped 9.9 per cent, national debt has soared to £2.11tn, the cost of putting 4.7m workers on furlough is £53.8bn, the tax take has fallen £65.2bn and 726,000 jobs have been lost so far.

The reason we do not know what type of chancellor we have is because he has not been able to get hold of some of the gnarly issues in our tax system – and so the real cut of jib may be shown on March 23, which has been dubbed ‘tax day’.

This is the moment we are supposed to get a series of major consultations into the way our personal and business finances operate, and if word from the Treasury is right, it could demonstrate the chancellor’s desire for the most fundamental shake up since Nigel Lawson overhauled income tax rates.

Those who know him say Sunak is a joined-up thinker – he realises that you can not just tweak one bit of the taxation system without affecting another.  That seems sensible, so what are we going to get?

You can draw up your own list, but my guess is it will feature business rates and digital taxes, income tax for the self-employed and capital gains, inheritance, and stamp duty, and, of course, tax relief on pensions.

All of these things are essentially linked together, and you can not go tinkering with one without having a knock-on effect on the other.

We see this unintended behaviour all the time. I know of young savers who are cashing in Lifetime Isas thanks to the government’s temporary waiver on exit penalties, because they now realise the Isa will never help them buy a house where they want.

And I know of landlords who are using the stamp duty holiday to bundle up their properties into limited companies.

If the government starts tweaking national insurance for the self-employed it will lead to a further rise in limited companies, so that is why Sunak is also probably looking at corporation tax rates for small businesses and the use of capital gains.

This latter tax is ripe for the most fundamental of overhauls as it now seems so out of kilter with rates of income tax.

We may have to wait until the chancellor stands up for his first real Budget in the autumn to see the real Rishi Sunak.

The plight of first-time buyers

One area that does desperately need reform is in the buying and selling of homes. If the major problem with the housing market is affordability, how much excess price is built in because of friction in the sales process?

Sales fall through all the time because chains collapse, prices are inflated because of the competitiveness in the buying process and people are put off moving up and down the chain because of stamp duty. 

All of this affects house prices. When first-time buyers – albeit only those living in the south of England – moan about high house prices, they blame everyone from buy-to-let landlords, to baby boomers who have done well out of the market, and greedy builders.

Governments are very receptive to the plight of first-time buyers, so if this group started pointing the finger at the house sales process then maybe something might actually be done.

Active managers must be more active

Now is the time for active fund managers to show their mettle. If we are seeing a shift from growth to value, then there are going to be a lot of excuses trotted out by fund bosses whose style has fallen out of fashion.

The question will be: are they going to stick to their guns, or will they move with the times?

There is no point in an active manager if they blindly stick to their style in a market where it does not produce returns. You may as well just have a tracker.

James Coney is money editor of The Times and The Sunday Times

@jimconey