The Budget should put taxpayers on high alert

Laith Khalaf

Make no mistake this was a big Budget, with £75bn of giveaways over the next five years, and yet the chancellor was still able to pay down debt.

Some of this was funded by previously announced policies, such as the new health and social care levy, and the downgrading of the state pension from a triple to a double lock.

A lot of this money, around £35bn a year, comes from improved economic forecasts which have given the chancellor an enormous amount of wriggle room.

Those upgraded forecast have delivered even more than usual for the Exchequer, because of the chancellor’s decision to freeze income tax allowances at the last Budget.

That means almost everyone on the country should be on high alert for fiscal drag, because wage increases will result in workers paying much more income tax.

This clearly elevates the case for tax planning and bolsters the value of tax shelters like Isas and Sipps.

Savers and investors can breathe a sigh of relief over some of the things that didn’t happen in the Budget. There was no rise in capital gains tax, and no cut to the CGT allowance. Pension tax relief and inheritance tax remain unscathed too.

Some of the Chancellor’s policies, notably the rise in the national minimum wage, will clearly add fuel to the inflationary fire.

The Chancellor also took time during his Budget speech to reference the Bank of England’s inflation target, and that will only crank up pressure on the MPC to raise rates when they meet next week.

Laith Khalaf is head of investment analysis at AJ Bell